George Parke v The Fenton Gretton Partnership [2001] CILL 1712

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-lawnow.com/adjudication

F entered into an agreement with P to carry out building works at his premises. P refused to pay F's final account, alleging that the works were unfinished, there were no certificates of practical or final completion, snagging had not been done and delay. F commenced an adjudication. However, documents were not served on P at the correct address. When P received the documents, his solicitors sought an extension for submission of P's case, but F refused. The adjudicator proceeded, and awarded F £169,267.

F then served a Statutory Demand upon P. P commenced court proceedings claiming that he had overpaid F, and thus that he challenged the adjudicator's decision. P sought to set the demand aside, but failed. P appealed. The Court found that the District Judge at first instance was not aware that these proceedings had been issued.

Rule 65 (4) of the Insolvency Rules 1986 gave the Court a discretion to set aside a Statutory Demand if the debtor had a counterclaim equalling or exceeding the debt or if the debt was disputed on substantial grounds. The Practice Direction for Insolvency proceedings said that if a Statutory Demand was based on a Judgment or Order the Court would not go behind it and enquire into the validity of the debt.

P argued that the decision did not give rise to a debt: it was a declaration of entitlement to payment. He also disputed the debt on substantial grounds, he had a cross claim exceeding the debt, and it would also be right to set aside the demand because of the existence of the court proceedings. F argued that the policy of HGCRA was to provide a speedy remedy causing financial liabilities to be discharged without prevarication. Therefore, F said it could pursue the award to bankruptcy proceedings even if there was a challenge to it.

The Court examined S.108 of the HGCRA, and noted that an adjudicator's decision was binding and enforceable. Case law indicated that decisions would be enforced whether or not the merits were challenged, and despite counterclaims. The Court held that the adjudicator's award created a debt which may form the basis of a Statutory Demand. That debt had the same status as a judgment, and hence the Court could not go behind it.

However, the Court was satisfied that the existence of the Court proceedings led to a genuine triable issue about the final account, and there was a valid cross claim going to the sum demanded. The Court did not accept that this approach allowed a binding decision to be reopened. The Court did not accept that a person could be made bankrupt when it is known that he has proper proceedings on foot which if successful will result in a payment to him. In the context of bankruptcy, the Court could not close its eyes to the underlying state of account between the parties. Therefore, the Court allowed P's appeal and set aside the Statutory Demand.

An adjudicator's decision can form the basis for a Statutory Demand. On an application to set the Demand aside, the Court will not look behind the award, but may take into account cross claims or that the award was disputed on substantial grounds giving rise to a genuine triable issue.

 

This summary was provided by CMS Cameron McKenna LLP.

 

For more information visit http://www.cms-lawnow.com/adjudication

 

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