Summary of the facts

The Claimant, LXB, was a subsidiary of a public company (an SPV). Squibb entered into a construction contract with LXB. A dispute arose which was referred to adjudication and the adjudicator awarded LXB the sum of £294,303.50.

Squibb failed to pay the Adjudicator’s award without giving any explanation. LXB therefore issued enforcement proceedings. Squibb resisted enforcement on the basis that LXB may just wind up prior to final account. Whilst a final account had not been prepared at the date of the hearing, it was anticipated that it would result the sum of c.£540,000 owing to Squibb.

As such, Squibb sought a stay of execution but on the basis that it paid the money into court or into an escrow account. Squibb’s resistance of enforcement was based on the six principles set out in Wimbledon Construction Co 2000 Ltd v Vago [2005] EWHC1086 (TCC):

1.That adjudication is a temporary decision.

2.Adjudicator’s decisions are intended to be enforced summarily and generally the successful party should not be kept out of its money.

3.The court may apply its discretion under CPR 47, taking the above two factors into consideration.

4.The probable inability of the party to repay the sum awarded by the adjudicator at the end of the trial may constitute special circumstances under CPR 47.1(1)(a) to grant a stay.

5.If the claimant is insolvent then a stay will usually be granted (subject to 6 below).

6.No stay will be granted if the paying party’s financial position is the same or similar to when the contract was made or if due wholly or partly to the failure of the defendant to pay the awarded sum.

The court compared LXB’s accounts (the most recent accounts were prepared a year prior), witness evidence and evidence from a firm of solicitors when considering LXB’s financial position.

Decision

LXB were entitled to enforce the adjudicator’s decision. It was point 6. above which ultimately led to the downfall of Squibb’s request for a stay of execution.

The court found that LXB’s financial position was no worse than when the contract was entered into.

Squibb had sought to rely on comments made by a representative of LXB at a without prejudice meeting to evidence the likelihood of LXB’s liquidation. As this representative was not a director of LXB, the court said that he had no control over the directors’ actions. The court also accepted evidence from the directors that to put LXB into liquidation would put them in breach of their obligations as directors.

Conclusion

The court is reluctant to delay payment of an adjudicator’s award, even where a party has seemingly genuine concerns about the other party’s solvency.

The message is that parties should ensure that they carry out the appropriate due diligence prior to entering into a contract as, unless a party’s financial status deteriorates, you are unlikely to be able to rely upon it to resist enforcement of an adjudicator’s award.