Mr Derek Vago engaged Wimbledon Construction to build an extension and refurbish his house in London. Disputes arose and they were referred to adjudication. The adjudicator awarded the contractor £122,923.34 inclusive of VAT. Mr Vago refused to pay, and commenced arbitration.
The contractor sought summary judgment and the defendant sought a stay on the basis of the contractor’s financial position.
Judge Peter Coulson noted that a stay pursuant to CPR Part 50 would only apply in “special circumstances”. He had no doubt that an inability to pay could amount to special circumstances. He then went on to consider the authorities dealing with the stay of an adjudicator’s decision because of receiving party’s financial position. He concluded (at paragraph 26 of the judgment) that the applicable principles were:
a) Adjudication (whether pursuant to the 1996 Act or the consequential amendments to the standard forms of building and engineering contracts) 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 claimant (being 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 out of an adjudicator’s decision, the court must exercise its discretion under Order 47 with considerations a) and b) firmly in mind (see AWG).
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 within the meaning of Order 47 rule 1(1)(a) rendering it appropriate to grant a stay (see Herschell).
e) If the claimant is in insolvent liquidation, or there is no dispute on the evidence that the claimant is insolvent, then a stay of execution will usually be granted (see Bouygues and Rainford House).
f) Even if the evidence of the claimant’s present financial position suggested that it is probable that it would be unable to repay the judgment sum when it fell due, that would not usually justify the grant of a stay if:
(i) the claimant’s financial position is the same or similar to its financial position at the time that the relevant contract was made (see Herschell); or
(ii) The claimant’s financial position is due, either wholly, or in significant part, to the defendant’s failure to pay those sums which were awarded by the adjudicator (see Absolute Rentals).”
The judge then applied these principles and came to the conclusion that the fact that directors of the construction company were making loans to the company demonstrated a high degree of practical faith in the future of the company. In addition, the company was in the same or a similar position at the time when the contract was made. It was a small company then, and remained a small company. The contract accounted for over half of the claimant’s turnover, and it was unsurprising that the failure to pay had a detrimental short-term effect on the claimant’s financial position. He therefore gave summary judgment and declined to award a stay of execution.
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It is not unusual for smaller building companies to suffer financially if payment is not properly made in respect of just one project. By the time an adjudicator has made a decision in the builder’s favour the financial position will be even worse. But if the paying party has a counterclaim, say for defects, that has not been considered in the adjudication then the court has to balance the right to be paid against the chance that the builder may not have the financial ability to repay amounts due in respect of the counterclaim. Here, the builder was in the same financial position at the end of the work as they were when they were asked to commence the work. If a building owner is prepared to employ a builder with minimal financial resources, why should payment of an adjudicator’s decision be refused on those grounds given that the employer was happy with the financial position at the start of the project?