Pioneer Cladding v John Graham Construction Limited [2013] EWHC 2954 (TCC)

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A clause in a sub-contract which provided that any sum awarded by an adjudicator in favour of the sub-contractor must be paid into an escrow account was invalid and unenforceable as being in breach of the Housing Grants, Construction and Regeneration Act 1996 (“the Act”). (2) The same applied to a clause which provided that the adjudicator’s fees were to be borne by the party referring the dispute to adjudication. (3) A stay of execution of a judgment enforcing an adjudicator’s decision was granted where, although the claimant’s financial position was no worse at the date of the judgment than it was at the date when the contract had been made, the claimant had misled the defendant into thinking that they were a much more substantial and successful entity than they actually were, and the sub-contract was therefore entered into on a false premise.

Technology and Construction Court, Mr Justice Coulson.


John Graham Construction Limited (“Graham”) instructed Pioneer Cladding Limited (“Pioneer”) to carry out the cladding and curtain walling sub-contract works at a site in South Shields. The subcontract incorporated the following adjudication provisions in clause 21:

“(iii) ……..the Adjudicator’s fees are to be borne by the Party which refers the dispute to adjudication…

(v) In the event that the decision of the Adjudicator is the making of a monetary award….. in favour of the Sub- Contractor, the following provision shall apply:-

(a) Graham shall place on deposit the amount of the Adjudicator’s award with Northern Bank Limited in the joint names of the solicitors acting for Graham and solicitors acting for the Sub-Contractor within seven days from the date of receipt by Graham of the Adjudicator’s decision.”

Pioneer referred two disputes to two separate adjudications. The net result was that there was a sum due to Pioneer of £193,005.53. Pioneer commenced legal proceedings seeking summary judgment for this sum.


The Court was asked to decide the following issues:

  • Whether Clause 21(v) of the sub-contract between Graham and Pioneer was enforceable.
  • Whether Clause 21(iii) of the sub-contract was enforceable.
  • Whether there should be a stay of execution of any judgment given in favour of Pioneer


The Court held:

  • There was no doubt that clause 21(v) was in breach of both the policy behind the Act and the Act itself. It was not in accordance with the Scheme for Construction Contracts introduced by the Act. Because it would deprive a claiming party of the money they had been awarded by the adjudicator, the clause was designed to discourage a party from exercising its right to take disputes to adjudication. Such a clause was unlawful and could not be enforced.
  • The conventional view was that if one part of the contract offended against the Act and/or the Scheme, the adjudication provisions in the contract would fail in their totality, and would be replaced by the Scheme. If that view was adopted, clause 21(iii) must also fail.
  • Even if that view was wrong, clause 21(iii) too was contrary to the Act and the Scheme. Although the provision was not as extreme as the provision in Yuanda (UK) Limited v.WW Gear Construction Limited [2010] EWHC 720 (TCC), which made the referring party liable for the whole of the costs of the adjudication, it was still a provision which could discourage a claiming party from commencing adjudication and was therefore unlawful. Consequently, Graham could not rely on the provision. The practical effect of this was that the sum awarded by the Adjudicator had to be reduced to exclude the Adjudicator’s fees making a net sum due of £188,665.49 and there would be judgment in favour of Pioneer for that amount.

With regard to the stay of execution the relevant principles were;

  • adjudicators' decisions are intended to be enforced summarily and the claimant should not generally be kept out of its money;
  • in an application to stay the execution of summary judgment arising out of an Adjudicator's decision, the Court must exercise its discretion under Order 47 with considerations a) and b) firmly in mind;
  • The probable inability of the claimant to repay the judgment sum (awarded by the Adjudicator and enforced by way of summary judgment) at the end of the substantive trial, or arbitration hearing, may constitute special circumstances within the meaning of Order 47 rule 1(1)(a) rendering it appropriate to grant a stay;
  • Even if the evidence of the claimant's present financial position suggested that it is probable that it would be unable to repay the judgment sum when it fell due, that would not usually justify the grant of a stay if:

(a)                the claimant's financial position is the same or similar to its financial position at the time that the relevant contract was made; or

(b)                the claimant's financial position is due, either wholly, or in significant part, to the defendant's failure to pay those sums which were awarded by the adjudicator.

In the present case the Court was in no doubt that if the money was paid over to Pioneer, they would not be in a position to repay it if the arbitration that was currently ongoing went against them.

Pioneer’s current financial position was the same or similar to its financial position at the time when the sub-contract was made. However, at the time of the sub-contract, Pioneer misled Graham into thinking that they were a much more substantial and successful entity than they actually were, and the sub-contract was therefore entered into on a false premise. In consequence, Pioneer could not rely on their bleak financial position then to avoid the stay of execution now, because it was the opposite of what they were saying to Graham at the time.

The suggestion that Pioneer’s financial difficulties were caused or substantially contributed to by Graham would be rejected.

The Court therefore concluded that, notwithstanding the relatively high hurdles which had to be overcome; Graham had made out a good case for a stay of execution pending the outcome of the ongoing arbitration.

This summary was provided by CMS Cameron McKenna LLP.

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