Two recently published decisions in the TCC considered the enforceability of an Adjudicator's decision and insolvency issues

Typically, the TCC has sought to enforce an Adjudicator's decision and the avenues for the losing party to challenge the award is narrow. The case law regarding what may and may not give rise to a successful challenge is well known and outside the scope of this note.

An interesting sub-topic of enforcement is when the losing party is financially impecunious giving rise to the possibility of formal insolvency proceedings and therefore a moratorium on enforcement proceedings.

The TCC have, in two recent judgments, considered this in the scenarios of:

1. A losing party threatening to give notice to appoint an administrator (Bernhards Sports Surfaces Ltd v Astrosoccer4u Ltd [2017] EWHC 2425 (TCC)); and

2. A losing party claiming it had entered into a CVA (Rossair Ltd v Primus Build Ltd [2017] EWHC 2430 (TCC)).

Bernhards Facts

The claimant (Bernhards Sports Surfaces Ltd) obtained an Adjudicator's decision against the defendant (Astrosoccer4u Ltd) for a payment of a 175,962.57 for the installation of a sports pitch. The defendant refused to pay and, although accepting that the sum owed to the claimant was undisputed, alleged a counterclaim.

A week prior to the enforcement hearing, the defendant issued and filed a notice of intention to appoint an administrator (NOI). The effect of the NOI was to put an interim moratorium on the enforcement proceedings. Because of the moratorium, the claimant required the court's permission to continue the enforcement proceedings.

Bernhards Judgment

Coulson J, in assessing whether it should grant permission to continue proceedings, applied the principles in Re Atlantic Computer Systems plc [1990] EWCA Civ 20 which were summarised by the Judge in South Coast Construction Ltd v Iverson Road Ltd [2017] EWHC 61 (TCC) as follows:

+ It is the burden for the party seeking permission to continue the proceedings to prove the case for doing so.

+ The moratorium's purpose is to assist the company to resolve the issues for which the administration order was made.

+ The court must undertake a balancing exercise between the claimant's legitimate interests and the legitimate interest of other creditors.

+ Under usual circumstances, it is sufficient for the court to grant permission if significant loss (financial, loss by reason of delay and loss that is not financial) would be caused to the claimant if permission to continue was refused.

+ If a substantially greater loss would be caused to others by granting permission, or loss that is disproportionate to the benefit it would confer on the claimant, permission to continue may be refused.

Coulson J held that, following the principles in Re Atlantic and South Coast, the claimant was entitled to be granted permission to continue proceedings.

In his judgment, Coulson J highlighted the conduct of the defendant including that there was "no evidence that it [NOI] has ever been filed at Companies House" and that there was "no evidence of any actual insolvency".

The defendant's solicitors were also criticised for their participation in the defendant's deceitful manoeuvre to abuse insolvency proceedings in an effort to avoid paying the debt due and also their "breathtakingly rude" correspondence to the claimant's solicitor's.

Rossair Facts

The claimant (Rossair Ltd) applied to enforce an adjudication decision of 353,726.02 plus interest and 85% of the Adjudicator's costs by summary judgement, following a dispute in respect of two interim payment applications.

The defendant acknowledged service of the enforcement proceedings, stating an intention to defend the claim but failed to file evidence until the last day prior to the hearing. In a letter to the court the defendant raised two defences to the payment of the award. Firstly, the Adjudicator had no had jurisdiction and secondly, that a stay on proceedings should be granted as the defendant was in a company voluntary arrangement (CVA).

Rossair Judgment

The court granted the application for summary judgement. O'Farrell J rejected the jurisdiction defence and, following South Coast Construction, addressed the issue of the CVA moratorium, deciding that.

+ The defendant stated that it was in a CVA moratorium but its witness statements failed to evidence this.

+ Instead it was found that a CVA moratorium was merely proposed.

+ Under s.1 of the Insolvency Act 1986, where a director of an eligible company makes a proposal for a voluntary arrangement, they may take steps to obtain a moratorium.

+ In this instance, there was no evidence of such steps being taken.

+ The Insolvency (England and Wales) Rules 2016 state that the fact a company is in a moratorium should be advertised and published in the Gazette.

+ The defendant failed to provide evidence which the court was satisfied with and thus the court held there was no moratorium in place.

In her judgment, O'Farrell J reminded the parties that the court could order a stay of an adjudication where a defendant was unable to pay the award. However, the court would only exercise this power in exceptional circumstances and where there was evidence before the court to justify doing so.

Comment

Both these cases highlight in clear terms that the TCC will not condone a losing party abusing the insolvency rules in order to obtain a moratorium as a way of avoiding liability for an Adjudicator's award, particularly absent any evidence that the insolvency steps threatened are genuine (Bernhards) or have been carried out (Rossair).