“Imperative that cashflow is maintained as a priority in the construction industry”

True Fix Construction Ltd v Apollo Property Services Group Ltd [2013] EWHC 2524 (TCC)

The court’s judgement in True Fix Construction Ltd v Apollo Property Services Group Ltd [2013] EWHC 2524 (TCC) was published earlier this month. In this case, Ramsey J in the Technology and Construction Court (TCC) in England enforced the adjudicator's decision in favour of the claimant/contractor and declined to grant a stay of execution.  This along with other recent cases shows a consistent approach by the courts in restricting the grounds for a stay of execution and giving effect to one of the original objectives of adjudication:  supporting contractor’s cash-flow. This has particular resonance given the recent financial climate.

Facts of the case

The claimant, True Fix Construction Ltd, undertook some roofing work for a school in Kent for the defendant, Apollo Property Services Group, in early 2012. The roofing work was being carried out alongside some other works, which were the responsibility of another contractor, Powerwall. Powerwall unfortunately went into administration. Apollo, still required the other works to be carried out, so it was agreed that True Fix would replace Powerwall and carry out the additional works. In order to do so True Fix needed money from Apollo to purchase supplies. Apollo failed to make this payment for the supplies. The parties went to adjudication, and the adjudicator decided that a sum of £125,000 be paid to True Fix. This payment was not made, so True Fix went to court to seek enforcement of this decision. In turn, the defendant, Apollo, applied for a stay of execution in relation to the adjudicator’s decision, on the basis of True Fix’s questionable solvency. Apollo was concerned this meant that if paid, the sums could not be later recouped from True Fix.

The Judgment

When considering whether to grant applications for a stay of execution, the court should consider the principles set out in Wimbledon Construction Company 2000 Ltd v Derek Vago [2005] EWHC 1086 (TCC). That case emphasised that adjudication is designed to be a quick and inexpensive method of arriving at a temporary result, and that when deciding whether to grant a stay of execution the court must consider the solvency of the contractor in detail.

Ramsey J held that, applying the Wimbledon case, if the claimant was in insolvent liquidation, or where they would probably be unable to repay the judgment sum, then a stay of execution would be appropriate. However a stay of execution would not be granted if: (1) the claimant’s financial position was the same as or similar to when it entered into the contract; or (2) its perilous financial position was due to the defendant’s failure to pay the sums awarded at adjudication.

The court concluded that in looking at the facts of the case overall there was a real possibility that True Fix would be able to repay the amount the adjudicator awarded, as although True Fix were having financial difficulties, these were in part due to the defendant’s failure to pay the sums awarded at adjudication. The court therefore enforced the adjudicator’s decision for the payment of £125,000 to be made to True Fix by the Apollo.

Other cases

This case is consistent with the approach taken in other cases this summer, where the court enforced the adjudicator’s decision and did not grant a stay of execution. For example, in Westshield Civil Engineering Ltd and another v Buckingham Group Contracting Ltd [2013] EWHC 1825 (TCC) the court commented that the sub-contractor had “at least had some financial question marks hanging over them at the time at which it entered into the sub-contract" and therefore, although its financial position was poor, it had not changed since the contract was initially made. In the case of FG Skerritt Ltd v Caledonian Building Systems Ltd [2013] EWHC 1898 (TCC) the court granted a temporary stay of execution, with the proviso that it would be lifted when a parent company guarantee was executed and delivered to the main contractor's solicitors. Arguably, this case also highlights the courts’ desire to enforce the decisions of adjudicators even where issues of potential insolvency arise. The facts in this case justified a stay of execution. However, the court was eager to enforce the adjudicator’s decision, so it only granted a temporary stay of execution, providing the sub-contractor with a way in which to bring the stay to an end, and have the adjudicator’s decision enforced.

Comment

The enforcement of the adjudicator’s decision in the True Fix case is not in itself a surprising result for the TCC, given previous cases. However, there are two interesting aspects:

  1. The degree of sympathy afforded to True Fix by the court perhaps reflecting in part the recent difficulties in the industry: the court noted that “whilst it might not be easy for the money to be repaid” there was still a possibility that True Fix would be able to repay the amount, and that it is imperative that cash flow is maintained as a priority in the construction industry”. The court further stressed that the claimant should not “be kept out of the money”.
  2. The court’s view of the role of adjudication itself: at paragraph 31 of its judgment the court records that "the essence of adjudication is to provide cash flow".

Conclusion

It is therefore clear that the courts, particularly in England, will generally be reluctant to refuse to enforce adjudicator’s decisions even where there is a risk of insolvency such that the monies may not be able to be repaid. In the case of True Fix, the court offered clear support for the policy underlying adjudication, perhaps influenced in part by the recent difficulties in the construction sector. A similar approach is likely to apply in Scotland, although the Scottish courts have recently shown more willingness to refuse to enforce adjudicator’s decisions for other reasons.