Can the loser of an adjudication refuse to pay if they’re nervous the money may disappear – never to be seen again – into the winner’s debt pile?
It’s all very well to explain that 28-day dispute adjudication is only about “pay now, argue later”. What if there is no later?
What if the adjudicator orders payment, and the money is paid, and the payee now does a commercial runner? What if later the payee has gone bust? And what if by then the adjudicator’s high-speed, knock-about, rough-and-ready decision is a few bricks short of a full load? I mean, the decision is damn well wrong, but money is paid. Now what?
I reckon that’s the sort of thinking that gave Northern Ireland main contractor Merex Construction Ltd the jitters. Actually, it’s the same thinking over all the 15 years of adjudication that has tormented our industry.
The subcontractor, Rodgers Contracts (Ballynahinch) Ltd, probably had the jitters about why Merex hadn’t paid them, and called for a quick adjudication. It won. Merex got the jitters too. It didn’t fancy shelling out the £160k the adjudicator ordered them to pay because it reckoned it was a wrong result and that they would never get it back if and when they won a “proper” battle in arbitration. The whole idea of adjudication is to get a quick rough and ready decision about who should have the cash while waiting for a court or arbitrator to “properly” decide the issues. Great idea until it dawns on one or the other party that the other bloke will have the money in his bank, not theirs. Then those jitters get the better of you.
Rodgers did a fair amount of subcontract civils work for Merex at its main contract for Belfast Harbour Commissioners at Musgrave Scrap Wharf, Belfast. Merex complained that Rodgers’ concreting work was defective and had a claim from the employer, which Merex paid for. Hence it withheld cash from Rodgers. The subbie quite fairly called for an adjudicator because it said the main contractor was wrong. The adjudicator said the same, hence the order to stump up £160k to Rodgers.
Jitters came rushing in. Merex gave notice of arbitration. So now Merex came to court inviting the judge in the meantime to stay the adjudicator’s order to pay that £160k. Things got even more exciting. Merex said that Rodgers was in financial straits, so could Merex hang on to the cash. But then Rodgers said that Merex had financial difficulties too. So they should not hang on to that cash; if the arbitrator eventually agreed with the adjudicator it might be that Merex could not find the money. It’s a sort of no-score draw. Except, of course, an adjudicator’s award according to statute is to be obeyed and that means Metrex is to be relieved of its £160k.
The Northern Ireland judge had to decide what to do. Should he order the payment or not? It was not argued that the adjudicator’s decision was wrong or contained a procedural impropriety. No, the argument was about risk of the money being lost if the payee went out of business before the “proper” trial in arbitration. The bolt hole is to be found outside adjudication. There are Civil Procedure Rules in Northern Ireland equivalent to those in England and Wales, which invite the judge to ask if there are “special circumstances which render it inexpedient to enforce the judgment” and a stay of enforcement may be granted.
The approach for the judge is first not to interfere or even investigate the reasoning or decisions of the adjudicator. The result is binding. The approach to enforcement here is all about the assets and liabilities of the winner. The judge learned that Rodgers was in trouble for money. It had entered into a “creditors’ voluntary arrangement”. Its debts were £1m. The creditors would only receive 50p in the pound. Merex didn’t want the £160k to go into that pot. If Merex eventually won in the arbitration it might be lucky to receive the same 50p in the pound. Further, the judge can be assured that the arbitration result is only a couple of months ahead. Then Rodgers pounced on Merex’s assets and liabilities saying that if Merex kept the cash and the arbitrator now told them to pay Rodgers, there wasn’t enough money in their pot. So we want the money now, said Rodgers.
The judge used his discretion to deprive both parties of this pot. The stay of enforcement was granted but on the basis that the £160k is paid into court. Nobody gets it until the contest is finished in the arbitration.
Tony Bingham is a barrister and arbitrator at 3 Paper Buildings, Temple