Anglo Swiss & Good Start v Packman Limited [2009] EWHC 3212 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

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

Summary


In this case the Court held that to allow the claimant to continue with proceedings which, if successful, would have the effect of reversing in whole or in part a prior adjudication award without having first paid the amount of such an award would seriously undermine the purpose of the Housing Grants, Construction and Regeneration Act 1996 ("the Construction Act"). The Court also stayed the proceedings until the claimants had provided security for the costs of the action. However, the Court declined to order a stay of proceedings pending compliance with the Pre-Action Protocol for Construction and Engineering Disputes because there had already been an exchange of information and a discussion of the issues during the adjudication.

Technology and Construction Court, Mr Justice Akenhead

Facts

The three claimants were all companies registered in Jersey and owned by the same unidentified family trust. The claimants were formed in order to acquire and develop properties in London and the Home Counties. In 2005 Packman Lucas Ltd ("Packman") was engaged by Anglo Swiss Holdings Ltd ("Anglo Swiss") to provide engineering services in relation to a plan to develop a luxury hotel on Piccadilly. In 2006 Good Start Ltd ("Good Start") retained Packman in relation to an associated development in a nearby property, and Mentmore Towers Ltd employed Packman in relation to a project to develop a stately home in Buckinghamshire. Payment was to be made in relation to each of these contracts by reference to the stages of work reached by the Defendant. Works on the projects subsequently ceased and payments of fees to Packman ceased in mid 2007. The claimants were subsequently to allege that they had overpaid Packman. In April 2009 Packman commenced adjudication proceedings against the claimants for outstanding fees on each of the projects. The adjudicator decided in each case that each of the claimants was liable in respect of unpaid fees for each of the projects that Packman had been engaged for. The adjudicator decided that because withholding notices had never been served or had not been served within time then it was not open to the claimants to argue that no sum was due or that there had been overpayments. The adjudicator ordered the claimants to pay Packman a total of £438k. The claimants did not honour the adjudicator’s decisions.

The claimants’ solicitors having indicated that they were not instructed to accept service of enforcement, Packman sought (and was given) the Court’s permission to serve the claimants in Jersey with proceedings for enforcement. No Acknowledgments of Service were filed as required, and so judgments were entered for the full amounts. The claimants made no applications to have the judgments set aside. On 25 August 2009 interim charging orders were made on the respective properties owned by the claimants. On 2 October 2009 the Bank of Scotland, which was primary lender to Anglo Swiss and had a priority charge over the property on Piccadilly appointed a receiver to sell the premises. The Bank indicated that it was facing a significant shortfall with regard to recovery of its debt from the sale (although Anglo Swiss disputed this). On 15 October 2009 the claimants issued three sets of proceedings on behalf of each of the claimants claiming recovery of alleged overpayments made by them to Packman. After Court hours on 15 October 2009 the claimants faxed a letter to the Court inviting it to defer making the interim charging orders final until the disputes which were the subject matter of the proceedings issued on that date were resolved. On 16 October 2009 the Court made a final charging order on the three sets of premises owned by the claimants. The claimants did not appear at the hearing of the Final Charging Order application. The Court considered the representations made in the faxed letter of the previous evening but rejected them on the basis that there was no assertion that the claimants were unable to pay the judgment sums and that adjudication decisions and judgments should be honoured, even if there were other claims arising. Packman subsequently issued an application which was the subject matter of the present judgment.

Issues

Packman made the following contested applications for:

  • Stay of proceedings for compliance with the pre-action protocol;
  • Stay of proceedings because of the claimants’ non-compliance with the adjudicator’s decisions and the court judgments; and
  • Security for costs.

Decision

The Court held:

  • Stay for compliance with the Pre-Action Protocol would not be granted. Paragraph 1.2 of the Pre-Action Protocol provides that the Protocol does not need to be complied with to the extent that the proposed proceedings relate to the same or substantially the same issues as had been the subject of recent adjudication under the Construction Act. During the adjudication process there was exchange of information and discussion relating to the issues of overpayment and sums due (although neither issue was decided by the adjudicator given his finding that no valid withholding notices had been issued). Packman was therefore aware that the claimants were asserting these issues, which therefore fell under the Paragraph 1.2 exception. In any event the Court would have used its discretion to allow proceedings to continue without the Protocol having been complied with because, given the exchange of information during the adjudication process, it would have been a waste of costs to stay proceedings to allow compliance with the Protocol.
  • In relation to application for the stay until the judgments and adjudicator’s decisions were complied with, the following principles should be drawn from the authorities and the Civil Procedure Rules:
  • The Court has the power and discretion to stay any proceedings if justice requires it;
  • In exercising that power and discretion, the Court must have very much in mind a party’s right to access to justice and to issue and pursue proceedings;
  • The power is to be one that is used sparingly and in exceptional circumstances;
  • Those circumstances include bad faith and where the claimant has acted or is acting particularly oppressively and unreasonably.
  • In this case the claimants’ failure to honour the adjudicator’s decisions and the judgments made against them constituted unreasonable and oppressive behaviour, and involved some elements of bad faith. The Court would therefore order a stay of proceedings until the claimants had satisfied their contractual duty to pay out on the adjudicator’s decisions. To find otherwise would seriously undermine the purpose of the Construction Act.
  • In relation to the application for security for costs, the following factors suggested that there was reason to be believe that the claimants would be unable to pay Packman’s costs if ordered to do so:
  • The claimants’ failure to honour the judgments and adjudication decisions;
  • The single purpose for which each of the claimants was set up (to develop the various sites) had failed, in that the developments had not continued;
  • A receiver had been appointed by the bank funding two of the developments;
  • The provision of financial information by the claimants had been late, guarded and oblique;
  • The developments were for many millions of pounds. The fact that in those circumstances the claimants could not pay £438k strongly suggested an inability to pay costs if ultimately ordered to do so.
  • The costs estimate submitted by Packman of £253k was likely to be reduced on standard assessment to £180k. It was impossible to predict who would "win" at trial, so security should be based on a lower gross figure, namely £140k. Security for costs in this sum was to be provided in two instalments, to reflect the stages in which costs are generally incurred: £50k was to be provided immediately and £90k on the completion of the exchange of witness statements. There would be a stay in any event (whether it extended longer than the stay to comply with the judgments and adjudicator’s decisions) until the claimants paid the first tranche of security.     

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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