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When will the Court agree to stay the enforcement of an adjudication decision?

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31/03/2015

Since the case of Wimbledon Construction Company 2000 Ltd v Vago [2005], the Courts have usually been willing to stay the enforcement of an adjudicator’s decision if the unpaid party would be unable to repay the sum received in the event that the decision were reversed by later arbitration or litigation proceedings.

In February, in the case of Galliford Try Building Ltd v Estura Ltd [2015], the Court for the first time granted a partial stay due to the paying party’s financial difficulties.

The Court stated that enforcing the decision would cause “manifest injustice” to the paying party.

The Court considered this to be a rare case and it suggested that it would not come to the same decision in future unless the facts were exceptional. However, it is likely that we will now see parties seeking to persuade the Court that their circumstances also merit a partial stay.

The Facts

  • Galliford Try (“GT”), the Contractor was engaged by Estura, the Employer under the JCT Design and Build Contract 2011.
  • GT issued its interim application 60 (“IA 60”) which stated an anticipated final account of £12.66 million and that the value of the work as at the date of IA 60 was only about £4,000 less than the amount of the anticipated final account.
  • Estura failed to serve a payment notice or a pay less notice.
  • As such, the amount stated in IA 60 of £3,928,227 plus VAT and interest became the notified sum. The adjudicator ordered GT to pay this sum to Estura.
  • Estura failed to pay and GT commenced enforcement proceedings in the TCC.

Nothing unusual so far, but this is where things started to get interesting.

The Amount Due
Before the enforcement proceedings commenced in the TCC, Estura challenged IA 60 in a second adjudication. They asked the adjudicator to decide the true value of the works, and argued that the amount stated in IA 60 should have been much lower. The adjudicator in the second adjudication declined to proceed because he did not consider that he had jurisdiction to revisit the question of the value of the works at the time of IA 60. The amount stated in IA 60 was the notified sum because Estura had failed to serve either a payment notice or a pay less notice.

In the enforcement proceedings of the first adjudicator’s decision, the TCC Judge, Mr Justice Edwards Stuart referred to his previous decision in ISG Construction Ltd v Seevic College [2014] in which he held that the lack of a pay less notice meant that the employer had agreed to the value of the works claimed in an interim certificate. The employer was therefore bound to pay the amount stated in the interim certificate. However, the value of the works could be reconsidered in a subsequent interim application or in the final account, which would allow the employer to ‘correct’ any previous over payment to the contractor.

The Court therefore enforced the adjudicator’s decision that the amount due was the sum claimed in IA 60.

Stay of Enforcement
Estura argued that this case involved exceptional circumstances which would prevent them from revisiting the amount due to GT in a future interim application or in the final account, as envisaged by ISG v Seevic as follows:

  • the contract wording did not allow for a negative valuation;
  • the amount stated in IA 60 was extraordinarily high, almost the same sum that GT’s final account would be;
  • IA 60 was the last interim application;
  • there was no incentive for GT to now submit a final account; and
  • Estura lacked the funds to pay the amount ordered by the adjudicator or to pay for litigation to ensure a proper valuation of GT’s final account.

Estura therefore asked the Court to order a stay of execution of the adjudicator’s decision. They argued that enforcing the decision would amount to ‘manifest injustice’ contrary to the purpose of the Construction Act 1996.

Decision
Edwards Stuart J was persuaded by Estura’s ‘manifest injustice’ arguments and stated that it would not be fair to Estura to enforce the judgment in full. The Judge commented that he was “concerned to ensure that [GT] had the necessary incentive to achieve practical completion and submit its Final Statement’.

The Court granted summary judgment for £3.928 million (plus VAT and interest) and stayed enforcement of the judgment above the sum of £1.5 million.

Evidence of financial difficulty
Parties considering raising similar arguments to secure a stay in enforcement should note that the Court required detailed evidence of Estura’s financial difficulties before it would order a stay.

Comment
It remains to be seen whether this decision will undermine the Court’s usual robust enforcement policy with regards to adjudicators’ decisions.

The Court noted that GT had not done anything wrong however this must have offered little comfort to GT given that they are now out of pocket to the tune of over £2 million.

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