No HT-08-301

IN THE HIGH COURT OF JUSTICE

QUEEN’S BENCH DIVISION

TECHNOLOGY AND CONSTRUCTION COURT

[2008] EWHC 3056 (TCC)

Royal Courts of Justice

Thursday, 13 ^th November 2008

Before:

MR JUSTICE RAMSEY

B E T W E E N

KNIGHT BUILD LIMITED

Claimant

URVASCO LIMITED

Defendant

Transcribed by BEVERLEY F NUNNERY & CO

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MR A SPEAIGHT QC (instructed by Hannah & Mould) appeared on behalf of the Claimant

MR A STEYNOR (instructed by Silver Shemmings) appeared on behalf of the Defendant

J U D G M E N T

(As approved by the Judge)

MR. JUSTICE RAMSEY:

Introduction

1. This is an application under RSC Order 47 to stay the execution of a sum of £322,133.67 which the defendant, Urvasco Limited, now accepts that the claimant, Knight Build Limited, is entitled to recover on the application for summary judgment under CPR Part 24 arising out of the decision of an adjudicator, Mr. Peter Aeberli.

2. The defendant is the developer, owner, and main contractor of the Silken Hotel, which is a new hotel and apartment building being built as part of a redevelopment of Marconi House, Strand, London WC2.

3. In about September 2006 the claimant and the defendant entered into a contract for the concrete works in the sum of about £6.25 million ("the Contract"). There were then three supplementary agreements. Clause 37 of the Contract provided for adjudication and stated that the Scheme of Construction Contracts would apply.

4. Disputes arose and the claimant alleged that the defendant had failed to fulfil various obligations under the Contract, including an obligation to make stage payments. An adjudication was commenced by a referral dated 3 September 2008. The adjudicator, Mr. Aeberli, was appointed. In the referral a number of claims were made. They are set out in para. 11(a) of the Claim Form. Substantially, there were claims for various stage payments and a claim for a declaration that the referring party had no liability to pay liquidated damages for a certain period.

5. The adjudicator made his decision dated 17 October 2008. Various jurisdictional objections had been raised by the defendant in the adjudication and the adjudicator dealt with these in his decision. The adjudicator decided, in what both parties accepted was a thorough and well-reasoned decision, that the defendant had to pay the claimant the sums for which I have given summary judgment. Those sums arose out of payments which had been due in July, August and September 2008.

The Enforcement Procedure

6. Following receipt of the adjudicator's decision, the defendant failed to pay any sum to the claimant and the claimant therefore brought these proceedings to enforce the decision by way of summary judgment.

7. Initially, standard TCC directions were given on 28 October 2008 leading to a hearing on 21 November, 2008. Evidence was to be served by the defendant by 11 November 2008, with evidence from the claimant in reply by 14 November 2008.

8. On 7 November 2008 the claimant made an application to truncate or abridge the procedure. The basis for that application was that on the evening of 6 November 2008 the defendant had served a referral in a further adjudication (''the third adjudication") in which the defendant was claiming damages against the claimant and, in so doing, was relying on the adjudicator's decision in the adjudication with which I am concerned (“the first adjudication"). In paragraph 5 of the referral the defendant said:

"Mr. Aeberli issued his decision on 17 October, 2008 and thereafter issued his Amended Decision amending slips. It is the case that the Decision of Mr. Aeberli is binding upon the parties.”

9. The defendant also relied on the contents of the decision within the notice of referral. In particular, it relied on certain findings as to defects in the claimant's work.

10. On this basis the claimant submitted that the defendant could not now sustain any jurisdictional challenge, that being the only ground which had been suggested in correspondence for a challenge to the adjudication decision. The claimant said that the defendant could not both challenge the decision and rely on it for the purpose of another adjudication.

11. I gave directions on 7 November 2008 proposing that the defendant should serve its evidence as originally ordered on 11 November 2008, and that the procedure should then be truncated so that the hearing would take place at an earlier date. I gave the parties liberty to apply-in respect of that proposed order. The claimant accepted the proposed order but the defendant did not and a short hearing was held on 10 November 2008 to resolve the position.

12. In a skeleton argument and in oral submissions made by Mr. Evans who appeared' on behalf of the defendant on that occasion, it became clear that the defendant was not taking any jurisdictional points and therefore was not challenging the claimant’s entitlement to recover the sums awarded by the adjudicator. Rather, the Issue was whether there should be a stay in those circumstances the issue which had to be dealt with was narrower and, therefore, with minor amendments I confirmed my previous proposed directions, leading to this hearing on 13 November 2008 where the issue of the stay has been dealt with.

Application for a stay

13. At this hearing the burden has been on the defendant to satisfy me that I should exercise my discretion and grant a stay under the RSC Ord 47.1(1) which provides that:

“Where a judgment is given or an order made for the payment by any person of money, and the court is satisfied, on an application made at the time of the judgment or order, or at any time thereafter, by the judgment debtor or other party liable to execution-

a) that there are special circumstances which render it inexpedient to enforce the judgment or order,….

then …the court may by order stay the execution of the judgment or order ….”

14. Mr Alan Steynor, who appears on behalf of the defendant, essentially relied on three grounds in support of a stay. The first ground relates to the financial situation of the claimant. Although he accepts that the financial evidence before the court is strong, he submits that it cannot be assumed that by the time that any sum is determined to be paid by the claimant, the claimant will be in a position to repay it. Essentially this depends on the financial information provided by the claimant, which I consider below.

15. Secondly, Mr. Steynor relied on matters which Mr. Zadeh, on behalf of the defendant says were said by Mr. Knight, on behalf of the claimant, in two telephone conversations on 27 October 2008 and 3 November 2008. Mr. Steynor says that, as a result of those conversations, there is real and proper concern that Mr. Knight may put the claimant company into liquidation to avoid paying any sums which may become due to the defendant and therefore the defendant would not recover the sums to which they are entitled. This ground depends on what was said in conversations between Mr Knight and Mr Zadeh.

16. The third ground relied on by Mr Steynor arises out of the third adjudication; He submits that if that claim of £5.5 million in that arbitration were set-off against the claim in the first adjudication, then the defendant would not be entitled to recover the sums which are to be awarded under this summary judgment Whilst Mr. Steynor is not contending that he can seek security for the £5.5 million claimed, although at times the submissions came close to that, he contends that in about January 2009 when the third adjudication is determined the defendant would be able to set off their claim against the payment claimed by the claimant and thereby receive credit for the amount of the summary judgment.

17. On this last point he has referred me to the decision of the Court of Appeal in Burnett v Francis Industries plc [1987] 1 WLR, 802, in which Bingham LJ dealt with a case involving three parties and where the question was whether a judgment obtained by a third party against a company should be stayed pending determination of a claim by that company’s parent company against the third party arising out of the same transaction.

18. In giving judgment Bingham LJ set out a non-exclusive list of eight factors which should be considered in determining whether "special circumstances" exist for the purpose of RSC Order 47.1 (l)(a), as follows at 811:

"First, it is relevant to consider the nature of A's claim. Suppose, for example, that it were based on a dishonoured bill of exchange. According to ordinary principles, it would follow that rarely, if ever, would B's application for a stay succeed in such circumstances. Second, it is relevant to consider the extent of the identity between C and B. The more closely they are identified, the more like a true counterclaim C's independent claim against A becomes. Third, it is relevant to consider the inter-relationship of the respective claims by A against B. and by C against A, for the same reason. Fourth, it is relevant to consider the strength of C's claim. The more obvious it appears that A will have to pay C eventually, the less likely it is that he will be prejudiced by a denial of the fruits of his judgment against B. in the short term. Fifth, it is relevant to consider the size of C's claim relative to A’s. That will rarely, if ever, be decisive, but it is I think as matter worthy of consideration. Sixth, it is relevant to consider the likely delay before the merits of C’s claim against A will be the subject of adjudication. Seventh (and including various factors that I have already mentioned), it is relevant to consider the extent of the prejudice to A if he is denied the fruits of his judgment until C’s claim is determined. Lastly, it is relevant to consider the risk of prejudice to C if B makes payment to A under the judgment. That will be particularly relevant if it is shown that there is a risk of the fruits of the judgment being removed from the jurisdiction, or dissipated within the jurisdiction. It is obvious relevance if A is a British resident with ample means to satisfy any judgment C may recover against him. It may also be relevant to consider the number and worth of any co-defendants to C’s claim.

19. Mr. Steynor relied on a number of those factors. He accepts that claims for enforcement of adjudication decisions, whilst not a category of their own, are claims where the court will not generally allow the losing party in an adjudication to avoid making prompt payment by raising the existence of a cross-claim as that would be contrary to the purpose and intent of the 1996 Act. He refers to the decisions, in particular, in Wimbledon Construction Co. v. Vago [2005] BLR 374 and Interserve Industrial Services Ltd. v. Cleveland Bridge UK. Ltd. [2006] EWHC 741 (TCC) which have dealt with this situation and show that the mere existence of a cross-claim which is being adjudicated or tried separately, but in which the decision has not yet been reached, does not constitute a special circumstance for the purpose of granting a stay. However Mr. Steynor says that, in this case, the position is different because the claim which the defendant seeks to make in the third adjudication is not just a cross-claim, but it is a claim based on the same contract and one which is grounded in the decision sought to be enforced. Therefore, he submits that the court has a wider ability to consider that cross-claim.

20. Mr Steynor then refers to timing and to the fact that there is likely to be only a short period before the cross-claim in the third adjudication will be dealt with. He also says, in relation to the fifth factor in Burnett v. Francis Industries, that the amount of the cross-claim, at present some £5.5 million, means that the sum sought to be stayed is only some 6 percent of that claim. However, I bear in mind that Bingham LJ said that this factor will rarely, if ever, be decisive but is just a matter worthy of consideration.

21. Mr. Steynor says that so far as the merits of the claim are concerned, the adjudicator, in his first adjudication decision, dealt with the findings of fact as to defects and there is, he says, a clear right to general damages for delay. He submits that so far as prejudice is concerned, there are concerns raised as to the ability and willingness of the claimant to make payment for any sums awarded in the third adjudication which I will deal with below.

22. On behalf of the claimant, Mr Anthony Speaight QC submitted that this is a case which comes within the usual considerations of whether there should be a stay of summary judgment on applications which arise out of adjudicator’s decisions. I have been referred to the decision of His Honour Judge Coulson QC in Wimbeldon v Vago at para 26. Mr Speaight submits that in this case, on the basis of the evidence of Mr Brad Pearse, there cannot be any question of the claimant having any financial difficulties at present and neither can it be said that it is probable there will be any financial difficulties in repaying the sum, either in January as a result of the third adjudication or in any subsequent proceedings where the effect of the first adjudication might be reviewed in court proceedings. Therefore it is submitted that there should not be a stay on the general principles summarised in Wimbeldon v Vago.

23. So far as the conversations between Mr. Knight and Mr. Zadeh are concerned, the claimant says these did not take place and that in any event there could not be a serious question of liquidation of a company which has the current assets, workload and financial position of the claimant company. In addition, the claimant points out that there is a performance bond which is currently in the sum of £660,000 and will be reducing on 30 November 2008 to £330,000.

24. Mr Speaight also submits that there are no grounds for a stay based on the third adjudication.

The conversations between Mr Zadeh and Mr Knight

25. I now turn to consider the conversations between Mr Zadeh and Mr Knight. I have evidence, both in witness statements and, unusually in a case such as this, I have heard oral evidence to resolve the difference between Mr Zadeh and Mr Knight.

26. Mr. Karl Zadeh, the commercial manager of the defendant, put in a witness statement and was also called to give oral evidence. He has overall responsibility for the project. He says that the claimant's works are incomplete and that there are major defects. He refers to the adjudicator's first decision in support of the defects. He estimates that the cost of completing and reinstating the works is about £500,000, and says that he is seriously considering employing another company to carry out the incomplete and defective work. He says that the defendant has a counterclaim against the claimant for some £5 million arising out of delay.

27. In his witness statement he says that he had telephone conversation on two occasions with Mr. Knight on 27 October 2008 and 3 November 2008. The gist of the first conversation was that Mr. Knight said:

(a) that the defendant should have paid the claimant the full amount, -regardless of the state of the works ; and this would have saved solicitors' and adjudication fees;

(b) that the defendant would not receive any money from the Claimant towards any damages claim;

(c) that the claimant believed that the works were complete and would not return to site to finish the works or carry out the remedial works until the money had been paid to them;

(d) that as there were no liquidated damages in the Contract, there is no time limit in which the claimant has to carry out outstanding works.

28. Mr Zadeh says he pointed out that, based upon what the adjudicator had said, the works were incomplete and that the defendant was entitled to damages as well as the costs necessary to reinstate the works and complete the incomplete works. He said that Mr. Knight responded that the claimant would not pay a penny for the reinstatement works or damages as he would fold up the company and put-it into voluntary liquidation so that the defendant could not get any money. On that basis it was therefore pointless for the defendant to .take any action as they would waste their money. Mr Zadeh says that he asked Mr. Knight what would be the point of this, and Mr. Knight responded that he had seven different companies under which he would start trading. He said that he had done this before to avoid payment.

29. Mr. Zadeh said that in the second telephone conversation with Mr. Knight on 3 November 2008, Mr Knight said he would rather fold the company than pay the defendant any money. He also said he would be employing a private detective to find out where all the directors and managers lived.

30. In oral evidence before me Mr Zadeh confirmed that he had had the conversations with Mr. Knight on those two occasions. He said that Mr. Knight told him that he was concerned when the claimant was going to get some money and when they would be allowed to finish the works. Mr Zadeh said that it was not fair for the defendant to pay the claimant as it had not completed the works. Mr Zadeh said that Mr Knight had told him that the claimant was not coming back to finish the works, and Mr Zadeh responded that the defendant would employ someone else to do the work. He said that Mr Knight told him that there was no way that the defendant would get a penny out of the claimant for the work done and that he would fold the company and there would be no money. Mr Zadeh said that Mr Knight told him that he had already done that once. Mr Zadeh said he asked the question, "That cannot be that easy?" and Mr Knight responded that he had several companies and he knew what to do.

31. Mr Zadeh accepted in cross examination that he had not, in any correspondence which had been exchanged with the solicitors for the claimant raised these matters which he alleged had been said by Mr Knight and that they had not been raised until his witness statement served on 11 November 2008. However, he said he did discuss the matter with Alway Associates who were acting on behalf if the defendant in the adjudications. He said that he had discussed it with the legal advisors as well. He said he referred it straightaway to his legal advisors to find out if it was serious.

32. After Mr Knight had given evidence, Mr Zadeh was recalled to give evidence on two particular matters. One was the financial position of the defendant. He explained that BBVA, the second largest bank in Spain, was funding it. There had been some problems with the second partner in terms of credit. So far as the works were concerned he said that currently a security company, Alandale were onsite, but he accepted that some works had been suspended, although the extent of the suspension was not clear.

33. The Claimant’s evidence in response went to two issues relevant to the stay: the conversations between Mr Knight and Mr Zadeh and the financial viability of the claimant company.

34. In relation to the conversation between Mr Knight and Mr Zadeh, Mr Knight, in short , accepted that he spoke to Mr Zadeh on or about 27 October and 3 November 2008, but said that he recalls clearly what was discussed and denied that he said what Mr Zadeh alleges that he said.

35. In his oral evidence before me one of the first questions asked of Mr Knight was whether he had ever told Mr Zadeh that he was going to find out where the directions of the defendant lived or obtain a private investigator to find that out. He said he could not remember ever saying that. He was then shown a document, which was an e-mail sent on 31 July 2008, which showed that he had obviously made those threats in July 2009. He accepted the contents of the email but said he did not remember the e-mail and he thought the conversation referred to was on which took place on 3 November 2008.

36. Mr Knight confirmed, in summary that he had been involved with a number of companies over the years, including some companies which had been put into liquidation and other companies which he has continued trading with.

37. So far as his shareholding in the claimant company was concerned he disclosed that he has, as it says in the accounts, 5,000 shares which gives him 50 percent of the shares. The position in relation to his wife’s 1500 shares is somewhat uncertain because of divorce proceedings. The other shares are owned by people who have been with the company for more than four years and are employed by the company.

38. In those circumstances he says that he would not think of closing the claimant company down and starting with a new company. He identified a number of points such as VAT registration, client base, as well as various other matters which he said just would not make closing down the claimant a viable prospect. He denied that he had said any of the matters which had been put to him. When it was said that he had told Mr Zadeh that he had no intention to go back to site, he said, “That’s wrong. We have been asking Karl [Mr Zadeh] if we could come back on site so that we can put the works right at our own cost”. He gave evidence of a more dire current position on site in terms of the suspension of work and problems with other companies.

39. The first matter that I must decide is whether or not there were conversation on 27 October and 3 November 2008 between Mr Zadeh and Mr Knight to the effect alleged by Mr Zadeh. There clearly were conversations and they arose out of the fact that Mr Knight was very anxious to receive the money which he was then entitled to under the adjudicator’s decision. It is quite evident that Mr Zadeh made it clear that he was not going to pay it because of the existing defects.

40. It seems to me that the true position of what happened in those telephone conversations is that Mr Knight did, regrettably, make threats to the effect that he would fold the company. I have no doubt that he referred to his previous indication that he would try and find where the managers and the directors lived. However, I do not think that there was any substance in what he was saying. I consider that he improperly made the threats but that it was in the heat of the moment and with natural frustration at the fact that he had not been paid. He had evidently made threats previously, as set out in the July 2008 email and previously companies with which he was involved had been put into liquidation, all of which was consistent with what Mr Zadeh said that Mr Knight had said in the telephone conversations. In addition, I consider that Mr Knight was not honest in his evidence concerning the July 2008 email. I therefore prefer Mr Zadeh's evidence as to what was said in the telephone conversations.

41. However, equally, whilst I accept Mr Zadeh's evidence of what was said, I think that Mr. Zadeh has exaggerated the importance of what was said to him by Mr Knight during those conversations. It seems to me that when he said he referred it to his legal advisors to see if it was serious, he was indicating that, whilst the matters stated in those conversations might be considered to be relevant in relation to these enforcement proceedings, he did not consider them as serious. If Mr Zadeh had had real concerns about what Mr Knight had said, I consider that he would have put it clearly in writing at the time, as he did so on 16 October 2008 when other allegations were made.

42. In those circumstances it seems to me that the true situation is somewhere between the two positions. There were, in my judgment, contrary to what Mr Knight said, threats made by Mr. Knight to wind up the company and to send private investigators to find out where the directors and managers of the defendant company lived. However, I do not think either that he meant it or that Mr Zadeh at the time took it seriously.

The grounds for a stay

43. In those circumstances I now deal with the question of the stay in three parts.

Financial position of the claimant

44. The first question is whether, because of the financial position of the claimant company either now or at a future date in January 2009, or, as Mr Speaight indicated, perhaps sometime later when the adjudication decision comes to be reviewed by the court, it is probable that the claimant will not be able to repay the figure of some £330,000 for which I have given summary judgment.

45. The most important witness statement of the financial position of the claimant cam from Mr Brad Pearse, who is the commercial director of the claimant. He put in a full and lengthy witness statement which exhibited not only statutory accounts for a number of years up to March 2007, but also draft accounts up to March 2008. The statutory accounts show increasing profit each year up to March 2007 where the profit was £1.5 million and the draft accounts show a figure of £1.25 million in the year end to March 2008. Mr Brad Pearse also refers to the bond which has been provided by Royal & Sun Alliance. He said in relation to the allegation that Mr Knight would fold the company, that he thinks that this is an absurd suggestion. He also disclosed information on charges against the company which show nothing unusual. He explained how the claimant finances itself with a cash reserve account and working accounts which show a very healthy current position. He pointed out that with sales of £25 million in 2007 and overheads of nearly £3 million, the cash flow situation is still critical. He disclosed information to show that the claimant has a very substantial order book, and he refers to a recent credit rating for the purpose of a new bond for a difference project. All of this information is supported by detailed background documents.

46. Mr Pearse pointed out that the sums now payable should have been paid as to £150,000 on 8 July 2008; some £3,000 by 19 August 2008 and a balance of some £131,000 by 5 September, 2008. He said that the claimant’s financial position, as shown in the accounts, is now better than when the contract was entered into, with pre-tax profits having increased by 73 percent.

47. On the basis of Mr Pearse’s full disclosure of the financial position of the claimant I find it quite impossible to come to a conclusion that the claimant would be unable, or propably unable, to repay the £330,000 now or on the relevant date in the future. The claimant has a strong current financial position in terms of assets, in terms of work-in-progress and also in the way in which the claimant runs its business through deposit accounts and working accounts. In those circumstances there are no special circumstances arising from the financial position of the claimant such as those which are set out in para 26 of the decision in Wimbeldon v Vago which would justify a stay on that basis.

Threats made by Mr Knight

48. The second ground on which the defendant seeks a stay arises out of the conversation which took place between Mr Zadeh and Mr Knight. As I have said there was no serious threat in what was said by Mr Knight, nor could there be. The claimant is a substantial company which, currently, has a good financial and trading position. There are, or course, difficult times ahead given the current financial climate. However, I do not consider that there are any realistic prospects, in relation to any repayment of some £330,000 awarded by way of summary judgment or the making good of defects or even any subsequent sums which may be due, that Mr Knight would be able to put the company into liquidation with his 50 percent share and support from the others or that, even if that happened, there would not be sufficient assets from which to obtain repayment of the £330,000. There is also the bond.

49. In my view, given the circumstances of the claimant, the threat made by Mr Knight to wind up the claimant to avoid paying the defendant was an empty one. On the basis of the financial position of the claimant and the existence of the bond I do not consider that the threat made by Mr Knight gave right to any special circumstances justifying a stay.

The third adjudication

50. The third ground on which the defendant relies for a stay is the existence of the claims in the third adjudication. As Mr Steynor fairly accepts on the basis of the authorities, particularly that of Jackson J in Interserve v Cleveland Bridge, it is not possible to obtain a stay even where the defendant reasonably expects to recover an equivalent or larger sum in a future adjudication. There are only very limited circumstances in which a party can set-off against sums due under an adjudicator’s decision. Those circumstances are set out in the decision of Jackson J in Balfour Beatty v Serco[2004] EWHC 3336 (TCC) and in the decision in William Verry Ltd v Camden London Borough Council [2006] EWHC 761 (TCC), RJ Knapman v Richards(2006) 108 Con LR 65 and Leywood Mechanical Engineering v Whessoe Oil & Gas & Anor [2008] BLR 198. Those cases show, generally that there is no ability to set-off against sums which are to be paid under an adjudicator’s decision except where the effect of an adjudicator’s decision is that there is an undisputed or an undisputable sum due, for instance , in terms of liquidated damages. In this case there is a disputed and a properly disputable unliquidated sum which is alleged to be due in the third adjudication. In my judgment there are no grounds whatever for allowing a set-off of any sums which may become due in the third adjudication against the sums which are currently being awarded by way of summary judgment in respect of the first adjudication.

Summary and conclusion

51. In those circumstances it does not seem to me that either on the basis of the present company accounts of the claimant or on the basis of the conversation which took place between Mr Zadeh and Mr Knight, or on the basis of the third adjudication there are any grounds on which I should exercise my discretion to stay the sum awarded by way of summary judgment.

52. I therefore order summary judgment in the sum of £322,133.67 and refuse the defendant’s application to stay execution under RSC Order 47.