[2018] EWHC 1143 (Ch)

This was an application to restrain notice being given of, a winding up petition, which sought payment of some £820k following an adjudicator’s decision in respect of goods supplied and services rendered for the development and conversion at Victory House, Leicester Square, London.

The building contract was in the form of a JCT Design and Build Contract 2011 and related to the development and conversion of an office building at Victory House. RGB served an interim payment application, number 30, on 11 July 2017 which led to the adjudication. The decision rejected an argument put forward by Victory House that it was not liable to pay the sum identified in the interim application because the parties had entered into a memorandum of understanding which provided for other payments to be made which were not as large as the figure claimed in application number 30. Victory House also said that it had served a valid pay-less notice. Again the adjudicator rejected this argument which meant that the adjudicator did not go into the question as to what would have been the value of the work, the subject of interim application number 30, if that work had fallen to be valued by him.

Victory House brought TCC proceedings by way of a Part 8 claim (see Dispatch 212). In the TCC Deputy Judge Smith held that RGB was entitled to summary judgment in relation to the adjudication decision. The TCC case did not determine two matters, one relating to the memorandum of understanding and the second relating to the question as to the notices which had been served by Victory House and the effect of those notices. Deputy Judge Smith made case management directions as to what was to happen in relation to these outstanding points. As Mr Justice Morgan noted in the winding- up proceedings, it was important to recognise that the fact that matters were still being pursued did not in any way detract from the final and binding character of the TCC judgment, which was to be complied with by 2 February 2018.

The petition debt here was based on the judgment debt. Mr Justice Morgan made clear that the judgment debt was no longer a disputed debt. There was no question of a set-off being asserted. However, Victory House did not pay and RGB issued a further interim application notice, number 31. Application 31 rolled up all of the work, which had been the subject of the previous interim application including the sums awarded by the first adjudicator. Prior to the second adjudication, Victory House had paid on account some £8.5 million. RGB claimed £11.7million.

The second adjudicator reached the conclusion that the gross value of the work done, up to the valuation date, was just over £7million. Allowing for retention, the net payment due to RGB was £6.9million. The adjudicator decided that the sum due on interim application number 31 was nil. He did not make an order that the contractor pay back any part of the £8.5 million already received and it was agreed the adjudicator did not have power to make that order. However, the logic of the order was that RGB had received a substantial sum, something of the order of £1.5 million, in excess of the sum due on a true valuation in accordance with the contractual provisions. The figure of £8.5 million paid by Victory House to RGB did not include the judgment sum because the judgment sum had not been paid by Victory House.

RGB issued the winding-up petition in relation to the judgment debt. Victory House raised two reasons as to why they should not have to pay.

First, the result of Adjudication No.2 was that if Victory House did pay the judgment debt, it would immediately become entitled to be repaid that sum so there is a cross-claim.

Second, there was said to be a cross-claim for unliquidated damages (the cost of remedial works) for alleged breaches by the contractor of the building contract. The Judge noted that those issues had been considered in a third adjudication and “rightly or wrongly” had effectively been rejected. He therefore concentrated only on the first cross-claim item.

Mr Justice Morgan referred to the decision of Mr Justice Coulson in Grove Developments v S&T (Dispatch 213). One of the issues there was whether, following a smash and grab adjudication, the employer could ask for a second adjudication in which he asked the second adjudicator to carry out a valuation of the work which had been done in accordance with the contractual provisions. Mr Justice Coulson suggested that the employer could, provided they had honoured the first adjudication decision.

Mr Justice Turner noted that Mr Justice Coulson had also said that if the figure determined in the second adjudication by way of interim payment was a smaller figure than had earlier been paid, in particular in accordance with the first adjudication, the employer would be entitled to ask for repayment of the figure appropriately calculated. The Grove case was one where there were two adjudications in relation to a single interim payment application, with one adjudication turning on the formal documents that had been exchanged, and the other involving what was described as a “true” valuation of the same matter.

Here Victory House said that their case was stronger because there had not been a second adjudication on the same certificate but a subsequent adjudication in relation to a later certificate in which the earlier one was subsumed. The second adjudicator had carried out a “true” valuation in accordance with the contractual provisions, in relation to an application for an interim payment, and it had emerged that no sum was payable.

Mr Justice Turner agreed that Victory House could say that it was “bad enough” for the employer that it has paid some £8.5 million when Adjudication No.2 has determined that the correct interim payment would be of the order of £7 million. It would be worse if the employer, to avoid winding up, then had to pay the further sum by way of the judgment debt.

The Judge then decided, following the 1999 case of Re Bayoil SA, that he had no doubt that Victory House had a bona fide cross-claim on substantial grounds and he dismissed the petition.