Adjudication: it isn’t always pay now, argue later

An adjudication award against the loser is upsetting. The loser is not only a tad peeved, he also has to immediately fork out the awarded sum to the winner. True, the loser can pay up then take the same dispute to court. But meanwhile paying up is a sort of “adding insult to injury” idea. The loser doesn’t want to pay, not least because they think the damn-fool adjudicator has dashed back to their office in the asylum, but also they are fretting that the happy winner will take the money winnings and dump their construction company into a liquidator’s hands. In other words, if it eventually happens that the High Court orders the adjudicator’s awarded sums to be repaid, the money is gone – gone to the liquidator. It’s a fair and reasonable gripe that the awarded and paid sums might well go down the insolvency drain. Let’s face it, the construction industry wins the gold award year after year for being the best at going bust.

The adjudicator in the recent case of Alun Griffiths (Contractors) Ltd vs Carmarthenshire County Council ordered the council to stump up £3,316,487 to the contractor. The council refused to pay on the basis that it did not accept the adjudicator had got it right, and it would now litigate the same dispute. But more particularly it did not want to pay up because the council said the contractor was insolvent and that the parent company guarantee was inadequate to safeguard the council’s position when it came back to court to argue that the result in the adjudication was so wrong that all the cash must be ordered to be repaid. Then lo, the pot would be empty. The £3m-plus would have been snaffled by the liquidator. The council would be left whistling for its money.

>>Also read: Adjudicator fees: paying the piper ahead of the tune

>>Also read: Temporary finality in adjudication: Why you must pay now, argue later

So the council applied to the High Court for a “stay”. It argued there are special circumstances which “render it inexpedient to enforce” the award of an adjudicator.

Here are the principles to be applied when the finances of the winner are wobbly – in other words, they set out the financial circumstances that might persuade a judge the adjudicator’s order to pay should not to be obeyed. The factors to consider are as follows:

(a) Adjudication is designed to be a quick and inexpensive method of arriving at a temporary result in a construction dispute.

(b) In consequence, adjudicators’ decisions are intended to be enforced summarily and the successful party in the adjudication should not generally be kept out of its money.

(c) In an application to stay the execution of summary judgment arising from an adjudicator’s decision, the court must exercise its discretion… with considerations (a) and (b) above in mind.

(d) 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 – rendering it appropriate to grant a stay.

(e) If the party that is seeking to enforce the adjudicator’s award is in insolvent liquidation, or if there is no dispute on the evidence that it is insolvent, then a stay of payment execution will usually be granted.

(f) Even if the evidence of the party’s present financial position suggests it is probable that it would be unable to repay the judgment sum when falling due, that would not usually justify the grant of a stay if: (i) that party’s financial position is the same or similar to its financial position at the time that the relevant contract was made, or (ii) the party’s financial position is due, either wholly or in significant part, to the other party’s failure to pay those sums which were awarded by the adjudicator.

It’s a fair and reasonable gripe that the awarded and paid sums might well go down the insolvency drain. Let’s face it, the construction industry wins the gold award year after year for being the best at going bust

As well as these principles, it is highly likely that if the party due the money offers a bond or guarantee which provides sufficient security, then the adjudicator’s order will be enforced. That angle is what arose in this Alun Griffiths Contractors case. The builder is a wholly owned subsidiary of Tarmac Holdings Ltd, which is in turn owned by CRH plc. This enterprise CRH is a supplier of aggregates, cement, lime, ready‑mixed concrete, asphalt, paving and more. It employs 75,800 people in 29 countries and has a turnover of £27bn. In other words, a bond put up by Tarmac within the CRH trading arrangements showed Tarmac to be sitting on a healthy net asset position. The bond is good.

You might see that had Alun Griffiths not had all this backing, then the court would likely have refused to oblige the council to pay up. There is one other feature in the principles to test for a stay; it is the financial state of a company when the original contract was struck. If you enter into a deal with a company that is already broke, you will get no sympathy or relief from the courts. The adjudicator’s award will be enforced. So too if the party’s financial state is caused by the other party to the contract playing cash-starvation tactics. Not uncommon, eh, what?

Tony Bingham is a barrister and arbitrator at 3 Paper Buildings, Temple