A real risk of the dissipation or disposal of an adjudication sum may justify the grant of a stay on enforcement of an adjudicator's award.

The recent judgment in Gosvenor London Ltd v Aygun Aluminium Ltd [2018] EWHC 227 (TCC) sets out an additional circumstance for a stay of enforcement on a summary judgment of an adjudicator's decision, extending the principles established in Wimbledon Construction Company 2000 Ltd v Derek Vago [2005] EWHC 1086 (TCC) (Wimbledon).

Facts

Aygun Aluminium Ltd (Aygun) was a sub-contractor for a project. It sub-contracted out parts of its scope to Gosvenor London Ltd (Gosvenor). The parties found themselves in a dispute which led to an adjudication and an award in favour of Gosvenor.

Gosvenor attempted to enforce the decision by summary judgment which Aygun (i) resisted on the grounds of fraud and (ii) asked to be stayed due to, amongst other reasons, Gosvenor's (lack of) financial viability. The former failed with the judge finding that the defence could have been raised at the adjudication and the evidence provided with the application could have been provided in the adjudication.

That left the financial viability argument, which centred on apparent discrepancies found in the accounts for Gosvenor. Gosvenor's financial accounts filed for FY 2016 and 2017 showed discrepancies for both debtors and current assets for 2016. The 2016 accounts showed both debtors and current assets at negative £14,650 and £14,522 respectively. However, the 2017 accounts showed the debtors figure for the same 2016 year (the 2017 accounts including the earlier year figures for comparison purposes) at £622,644 and creditors at negative £581,290.

During the hearing Gosvenor were asked directly to address the discrepancy. They explained that the updated 2016 accounts had been lodged with Companies House but did not show up on the filing history at Companies House as the update had been sent by post and not electronically. Fraser J "wholly rejected" Gosvenor's explanation, which was derided for "stretching credulity" and being "so obviously wrong, that had the matter not been so serious, it would have been verging on the comical".

Decision

The provisions governing a stay of execution of a judgment are set out in CPR Part 83.7(4) and require "special circumstances which render it inexpedient to enforce the judgment". These "special circumstances" for adjudications are set out in Wimbledon as follows:

  1. "Adjudication (whether pursuant to the 1996 Act or the consequential amendments to the standard forms of building and engineering contracts) is designed to be a quick and inexpensive method of arriving at a temporary result in a construction dispute.
  2. In consequence, adjudicators’ decisions are intended to be enforced summarily and the claimant (being the successful party in the adjudication) should not generally be kept out of its money.
  3. In an application to stay the execution of summary judgment arising out of an Adjudicator’s decision, the Court must exercise its discretion under Order 47 with considerations a) and b) firmly in mind.
  4. The probable inability of the claimant to repay the judgment sum (awarded by the Adjudicator and enforced by way of summary judgment) at the end of the substantive trial, or arbitration hearing, may constitute special circumstances within the meaning of Order 47 rule 1(1)(a) rendering it appropriate to grant a stay.
  5. If the claimant is in insolvent liquidation, or there is no dispute on the evidence that the claimant is insolvent, then a stay of execution will usually be granted.
  6. Even if the evidence of the claimant’s present financial position suggested that it is probable that it would be unable to repay the judgment sum when it fell due, that would not usually justify the grant of a stay if:
    1. the claimant’s financial position is the same or similar to its financial position at the time that the relevant contract was made; or
    2. The claimant’s financial position is due, either wholly, or in significant part, to the defendant’s failure to pay those sums which were awarded by the adjudicator.”

Fraser J extended the principles in Wimbledon by adding the following additional limb:

"If the evidence demonstrates that there is a real risk that any judgment would go unsatisfied by reason of the claimant organising its financial affairs with the purpose of dissipating or disposing of the adjudication sum so that it would not be available to be repaid, then this would also justify the grant of a stay."

Fraser J also set out four important considerations when considering limb (g):

  1. The principle will only apply in "a very small number of cases, and in exceptional factual circumstances";
  2. A high test will be applied to decide whether evidence reaches the necessary standard which will broadly be the same as the level of evidence needed to justify a Freezing Order (the Mareva test);
  3. The principle is not designed to prevent claimants from dealing with the adjudication sum in the ordinary course of business; and
  4. The evidence served to enforce the adjudicator's decision at summary judgment is important.

In summary, following an adjudication decision, if there is a real risk that the decision cannot be challenged in court because the claimant may dissipate the adjudication sum, a stay for the enforcement of the decision may be granted. However, this will need to follow a strict evidential test and will only be available in exception circumstances.

Comment

This new (or newly reiterated) limb will likely only have limited application but will be a useful tool for the construction industry and one which contractors, in particular, ought to be aware of.

As has been emphasised in recent months, the construction industry often works on tight margins and the risk of insolvency, particularly for sub-contractors, is high. However, Fraser J's considered opinion ought not to prevent construction companies from regular reorganisations or other such dealings with the adjudication sum, whilst nonetheless reducing the risk of such companies dissipating assets after fulfilling a contract.

Further whilst the evidential requirements of the new limb are the same as that of a Freezing Order, which might also provide an effective mechanism to prevent the abuse of this principle. In Gosvenor, Mr Justice Fraser specifically rejected Gosvenor's submissions that the appropriate course was for Aygun to be required to pay the judgment sum and immediately apply for a Freezing Injunction.

Ultimately, the principle should help to combat fraudulent construction companies who may intend to avoid past liabilities by winding-up from abusing the adjudication process.