Here’s a clever way of getting your claim paid: go straight to those who owe the payer money. Unfortunately, it can be a little tricky to navigate
It’s all very well getting a decision in your favour, but what do you do to actually make the person who owes you money pay up? Well, one option is not to press that person at all; instead you press someone who owes them money to pay you instead.
That’s what Kier Regional tried to do on an office contract in London. It lost on a technicality, but the story is a helluva useful reminder of what might be the answer to getting paid.
Kier and the employer, City & General (Holborn), had a difference of opinion. Kier was awarded 60 weeks’ extension of time, then held out its hand for 60 weeks of costs for its prolonged stay. An adjudicator agreed and awarded Kier its loss and expenses. Holborn didn’t pay, so the High Court enforced the award. Holborn still didn’t pay.
The debt was £720,000, so Kier slapped a charging order on the property, which meant it would get its cash when Holborn sold the £20m building. Mind you, that’s not a fat lot of good if some first priority bondholder swallows up all the £20m, and it’s another fat lot of good being kept out of £720,000 cash, isn’t it?
So, Kier poked around behind Holborn to see who owed it that kind of cash. The idea was to nip along to the High Court with the enforced adjudicator’s award and ask the court to order those others to pay Kier instead of Holborn. Neat.
Kier Regional poked around to see who owed Holborn money. The idea was to nip along to the High Court with the award and ask the court to order the outsider to pay instead of Holborn
The name of the device is a “third-party debt order”. It used to be known as a “garnishee order”. Let me tell you how it works. There are several important ingredients. First, the party holding an adjudicator’s award in its favour has to have it converted into a judge’s order to pay. Then it has to be able to prove that an outsider owes money to the party that won’t pay up.
Proving that is easier said than done, and it’s where Kier stumbled. But you’ve got the idea, haven’t you? The money from the outsider has to be not only due, but due to be paid now. Not next week – now. Then, even if you show cash is now due, it is still up to the judge to exercise discretion. They have to weigh up all sorts of pros and cons about making the outsider pay instead of Holborn. Kier stumbled here, too.
- The exercise of discretion only begins when the judge is satisfied that the outsider does indeed owe money. Mr Justice Coulson was urged by counsel to consider four factors:
- The prejudice that such an order would cause to the outsider
- The fact that an arbitration was just about to begin about the claim
- The lapse of time since the award
- Whether the adjudicator’s award contained obvious errors.
The judge was persuaded that if he ordered the outsider to pay Kier, there was a danger it would go into liquidation. Furthermore, the judge would be ordering the outsider to pay up on a system that has only provided an adjudicator’s decision on a temporarily binding basis. The thinking here was that this outsider was not party to that Construction Act rule, yet it was being ordered by the court to fork out on the basis of a 28-day, high-speed system. Can you see the oddity here?
Parliament brought construction folk into a high-speed system for deciding construction disputes, but bringing non-construction folk in by a back door was not intended. Importantly, the judge was told that the whole dispute decided in adjudication was now about to be subject to a full-scale arbitration beginning the following week.
I think the last point sold it to the judge. He would not oblige the outsider to pay up on a temporary award when a full arbitration would fully develop the case and see an award by the arbitrator within a few months. As for whether the adjudicator’s award was right or wrong, that was not the point. The judge simply preferred to wait for the arbitration to end so all parties could be confident about validity of the outcome and know what the final account would come out at between Kier and Holborn.
The thinking was that the outsider was not party to that rule. Yet it was being dragged in by the court to fork out, based on a high-speed system
The complication in this matter, however, doesn’t take away the useful tactic of obtaining your cash from someone other than the bloke who actually owes you it.
Tony Bingham is a barrister and arbitrator at 3 Paper Buildings Temple