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Adjudication Matters – November 2017

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10/11/2017

Crying wolf? The Court is critical of parties claiming insolvency to avoid Adjudicator’s awards

Two recent judgments in the Technology and Construction Court confirm that the Courts will critically assess whether the actions of a party claiming insolvency are genuine or are being used disingenuously in a bid to avoid payment of sums due under an Adjudicator’s award.

Introduction

Where a party seeks to enforce an Adjudicator’s award in Court, the defending party may apply to postpone the enforcement on the basis that it is unable to pay the sum due. This is known as a stay in proceedings and the Courts have previously accepted such a stay on the grounds of the Defendant being insolvent for example in the case of Galliford Try Building Ltd v Estura Ltd [2015] which we discussed in a previous edition of Adjudication Matters.

Such a stay in proceedings may be absolute or may be for such period and subject to such conditions as the Court sees fit.

Bernard Sport Surfaces Ltd v Astrosoccer Ltd [2017] EWHC 2425 (TCC)

The Court in this case found that the Defendant was seeking to abuse the insolvency process. Its notice of intention to appoint an administrator was “entirely bogus” and the actions of the Defendant were only made in order to avoid paying a legitimate debt.

Case details

The claimant, Bernard Sport Surfaces Ltd (Bernard) was engaged in a dispute with the Defendant, Astrosoccer4u Ltd (Astrosoccer) in connection with a football pitch at Whyteleafe Football Club in Surrey. Bernard obtained an Adjudicator’s decision against Astrosoccer for payment of £175,962.47. When Astrosoccer refused to pay, Bernard commenced adjudication enforcement proceedings in the TCC.

Several weeks before the hearing, solicitors for Astrosoccer wrote to Bernard’s solicitors seeking mediation. They gave Bernard an ultimatum of either accepting mediation or their client would enter an insolvency process.

Bernard responded that this indicated either an abuse of process or trading whilst insolvent. Astrosoccer’s solicitors then wrote again stating “You will get nothing then. Goodbye”.

Astrosoccer’s solicitors then sent an email to their client, copying in Bernard’s solicitors, advising Astrosoccer to draft a notice of intention to appoint an administrator and so prevent Bernard from obtaining priority over other creditors.

Subsequently, Astrosoccer wrote to Bernard on 21 August 2017 enclosing a draft notice of intention to appoint an administrator. Astrosoccer then entered into a number of transactions in an attempt to restructure themselves. These included:

  • A legal mortgage entered into with a related company which was ultimately owned and controlled by the same directors as Astrosoccer. The mortgage did not involve any lending;
  • A change in the controlling parties of Astrosoccer; and
  • A change in Astrosoccer’s registered address.

Shortly prior to the hearing, a notice of intention to appoint an administrator was filed with the Companies Court.

Decision

At the time of the hearing of the adjudication enforcement proceedings, the notice of intention to appoint an administrator had not been filed with Companies House by Astrosoccer and was in any event considered defective by the TCC as it was not accompanied by minutes detailing the decision to file it.

Additionally, the original letter of 21 August 2017 only contained a draft notice which the Court found Astrosoccer had no intention of serving at that time.

The TCC considered that Astrosoccer had no genuine intention of appointing an administrator, and this threat of administration had been used solely to pressure Bernard into withdrawing the court proceedings. Furthermore, Astrosoccer was still trading through its website and the TCC found that there was no evidence of actual insolvency.

The Judge found that Astrosoccer’s conduct was “a classic example of two directors endeavouring to use Victorian company legislation to avoid paying a due debt”. The Court was highly critical of Astrosoccer’s conduct, and enforced the Adjudicator’s Decision.

Rossair Ltd v Primus Build Ltd [2017] EWHC 2430 (TCC)

The Court recognised that it is only in very exceptional cases that it would exercise its power to stay enforcement of an Adjudicator’s award. On the basis of the evidence provided, the Defendant had not entered into a Company Voluntary Arrangement (“CVA”), nor was there evidence that any further steps had been taken regarding the insolvency. As such, the Court enforced the Adjudicator’s Decision.

Case details

The claimant, Rossair Limited (Rossair) was engaged as the mechanical installation sub-contractor by main contractor Primus Build Limited (Primus) in relation to the construction of a Crowne Plaza hotel in London.

A dispute arose in respect of two interim payment applications which Rossair referred to adjudication. The Adjudicator directed that Primus should pay the sum of £353,726.02 plus interest to Rossair in respect of the interim applications. In addition, the Adjudicator directed Primus to pay 85% of his invoiced fees.

Primus failed to pay and Rossair issued an application to enforce the Adjudicator’s decision. Primus submitted an acknowledgement of service suggesting that it intended to defend the application but then only served a witness statement the day prior to the hearing.

In this witness statement, it was stated that Primus had proposed that it enter in to a CVA and that the relevant documents had been filed at the High Court. As such, Primus sought a stay.

Decision

The Court drew attention to the fact that the witness statement did not in fact state that Primus was in a CVA, rather merely that one was being proposed. The Court was also critical of the fact that it had not been provided with an up-to-date explanation of the current status of Primus.

The Court noted that it was also an option for Primus to pursue a moratorium, a statutory procedure whereby a company contemplating a CVA can take advantage of a period of between one and three months during which creditors are prevented from commencing any enforcement action while the proposals are being put in place. However, again the witness statement failed to provide evidence that steps had been taken to obtain this. Similarly, the only evidence provided to the Court was a photocopy of an extract from the gazette in relation to Primus which made no reference to any moratorium.

As such, the Court was satisfied that Primus had not entered into a CVA, nor had they sought a moratorium. It was therefore appropriate to grant summary judgment to enforce the Adjudicator’s decision.

Summary

 The key point to take away from these decisions is that the TCC remains robust in the enforcement of Adjudicators’ decisions and will only stay such enforcement for insolvency reasons in very limited circumstances.

A key factor to be taken into account by the Courts when identifying whether proceedings should be stayed on insolvency grounds is the parties’ conduct. The Courts will seek to identify whether the party’s actions represent a genuine intention to enter insolvency or are being used in a way to avoid payment of sums due.

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