Further Clarification.

Victory House General Partner Ltd v RGB P&C Ltd [2018] EWHC 1143:

  • Confirms that a winding-up petition based on a failure to pay is likely to be stopped where a genuine crossclaim exists;
  • Follows the TCC's decision in Grove v S&T that an employer can bring a second adjudication to determine the true value of the works and may be entitled to repayment if the Contractor has been overpaid.

What's it about?

RGB was appointed as contractor under a JCT Design and Build 2011 contract in relation to an office development in Leicester Square. The Employer (Victory House) failed to give a pay-less notice in response an application for interim payment made by RGB and following an adjudication, RGB was awarded the amount claimed in the interim application (680,000). Victory House failed to pay and Part 8 enforcement proceedings were commenced in the Technology & Construction Court (TCC). The court entered judgment in favour of RGB for the amount awarded by the adjudicator.

A second adjudication commenced by Victory House determined that the true value of the works at that point in time was 7m. RGB had been paid 8.5m, meaning an overpayment by Victory House of 1.5m. On that basis, the adjudicator determined that the amount due to RGB was nil.

RGB submitted a winding-up petition in relation to Victory House's failure to pay the judgment debt. Victory House argued that it had a cross-claim and if it had paid the judgment debt, it would have been immediately entitled to repayment under the law of restitution.

Why does it matter?

In reaching its decision, the court agreed that Victory House had a genuine cross-claim, based on the decision reached in the second adjudication. Mr Justice Morgan placed much emphasis on Coulson J's decision in Grove Developments Ltd v S&T (UK) Ltd [2018] EWHC 123 (TCC), 177 ConLR 30, which stated that:

  • an employer could bring a second adjudication to determine the true value of the works; and
  • if the second adjudication confirmed that the contractor had in fact been over paid, the employer would be entitled to repayment.

Citing the general test in Re Bayoil SA; Seawind Tankers Corp v Bayoil SA - [1999] 1 All ER 374, Mr Justice Morgan considered that in the absence of special circumstances (there weren't any on the facts of this case), a winding-up petition should be dismissed if there is a bona fide cross-claim put forward for an amount which exceeds the judgment debt.

Now what?

Though not a ground breaking decision, the judgement in this case serves to reinforce Coulson J's decision in Grove which departed from the previous position that, where an employer had failed to serve a payment notice or pay less notice, it could not adjudicate on the true value of that payment.