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

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

summary

(1) In coming to a decision on whether or not to exercise its discretion to stay execution of a judgment enforcing an adjudicator’s decision, the Court has to consider, first of all, the probable inability of a claimant to be able to repay the judgment sum if ordered to do so at the end of a substantive trial or arbitration hearing leading to a final determination.  (2) Where there is a probable inability of the claimant to repay the judgment, if the claimant's financial position is the same or similar to the financial position at the time when the relevant contract was made, or the claimant's financial position is due, either wholly or in part, to the defendant's failure to pay the sums which were awarded in the adjudication, then, in those circumstances, the court is unlikely to grant a stay. (3) Where there may, on one party's contention, be an adjudicator's decision in the near future which may require payment by the other party, this cannot affect the approach of the Court when considering to grant a stay of execution of an earlier adjudication decision.

Technology and Construction Court, Mr Justice Ramsey

Background

Apollo Property Services Group Limited (“Apollo”) placed a subcontract order with True Fix Construction Limited (“TFC”) in relation to the provision of roofing work at Repton Park Primary School, Ashford, Kent.

There was another subcontractor, Powerwall, who was carrying out works at the site, some of which were in turn subcontracted to TFC. Powerwall's contract was terminated and Powerwall went into Administration. At the time of the Administration £150,000 was owed, from Powerwall to TFC, and documentation from the administrator suggested it was unlikely to be paid.

It was agreed on the 28 May 2012 between TFC and Apollo that TFC would become the “alternative supply chain” to provide the works unfinished by Powerwall.  However, TFC needed to have materials purchased because they had no funds to purchase them.  It was also clear that there were cashflow difficulties for TFC at this time because there was a question of more frequent payments to TFC.

An application for payment was made by TFC in December 2012. It was due for payment in January 2013, but was not paid. The matter then went to adjudication, and that led to an adjudicator's decision of 8 March 2013, in which the adjudicator awarded TFC the sum of £125,124.41 plus VAT and interest in respect of that claim for payment from Apollo. This was not paid, and that led to the commencement of proceedings on 24 April 2013.

TFC sought summary judgment for the amounts ordered by the Adjudicator.  Apollo asked the Court to grant a stay of enforcement on the ground of alleged probability that TFC would be unable to repay the judgment sum if ordered to do so at the end of a substantive trial or arbitration hearing leading to a final determination.

Another adjudication had also been started for a determination of the sum finally due to TFC from Apollo. The decision in that adjudication was expected just under three weeks after the date of the judgment in the present case.

Issues

Whether the Court should stay execution of summary judgment.

Decision

The Court held that:

  • The question of whether to stay execution of summary judgment is a matter for the discretion of the Court, and in coming to that decision the Court has to consider, first of all, the probable inability of a claimant to be able to repay the judgment sum if ordered to do so at the end of a substantive trial or arbitration hearing leading to a final determination.
  • Where there is a probable inability of the claimant to repay the judgment, if the claimant's financial position is the same or similar to the financial position at the time when the relevant contract was made, or the claimant's financial position is due, either wholly or in part, to the defendant's failure to pay the sums which were awarded in the adjudication, then, in those circumstances, the court is unlikely to grant a stay.
  • On the evidence, this was not a case where it could be said with sufficient probability that TFC would be unable to repay £125,000 if they had to do so as a result of a final judgment in relation to the final account.  The position was that whilst it might not be easy for the money to be repaid, on the figures, there was a real likelihood that they would be able to repay, given their current financial position.
  • The financial position of TFC at the time of entering into the subcontract could not be said to be substantially better than their current financial position and indeed appears to have been worse.  Further, in May 2012, TFC had suffered because of the Administration of Powerwall and Apollo had decided to give TFC substantial additional work, originally to be carried out by Powerwall, at the meeting of 28 May 2012.  This further work was given to TFC by Apollo, knowing of TFC's then financial difficulties as a result of the insolvency of Powerwall.  This was also a factor to be taken into account in this case.
  • It is imperative that cashflow is maintained as a priority in the construction industry.  Whilst the Court sympathised with the position of Apollo, who said that there was an adjudication coming in the near future which might, on an interim basis, award sums in favour of Apollo, or reduce the sum which would be due to TFC, the Court, on this sort of application, could not speculate on the outcome of that adjudication.
  • The essence of adjudication is to provide cashflow, and the fact that there may, on one party's contention, be an adjudicator's decision in the near future which may require payment by the other party, cannot affect the approach of the Court to an earlier adjudication decision which cannot at that stage be challenged and where the application for summary judgment to enforce that decision is conceded.
  • Adjudicators’ decisions have to be enforced, and this was not a case where the Court should, in its discretion, grant a stay of enforcement.  Therefore summary judgment was granted in the sum of the adjudicator's decision.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

 

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