According to Sarah Shemmings, an adjudication judge has ruled wisely against those who may use the other side’s poor financial situation as a reason for not paying.
The adjudication process is generally liked by the construction industry because it provides a relatively quick dispute resolution, even if it is only temporarily binding. Even so, there are times when the system is clogged due to a problem.
One such issue involves a losing party being hesitant to pay upon receipt of enforcement proceedings from an adjudication because it states that if it later turns out that this money needs to be repaid (which is not uncommon), the winning party may be unable to repay that money due to its current poor financial situation.
This scenario is not as unusual or unlikely as it may appear. The Technology and Construction Court (TCC) had to consider the situation, which becomes even more complicated if the winning party becomes insolvent during or shortly after an adjudication.
The TCC has also acknowledged the validity of the argument for refusing to pay in such circumstances.
However, it has recently established the following guidelines:
- If the winning party is in liquidation or administration on the date of the enforcement hearing, the decision will not be enforced.
- However, if it can be demonstrated that the poor state of the winning party’s finances is the result of nonpayment by the losing party, the courts will grant payment.
The TCC was presented with yet another scenario last month in Alexander & Law Limited -v- Coveside (21 BPR) Limited. How should an adjudicator’s decision be enforced when the winning party is the subject of an ongoing but unresolved winding-up petition?
The claimant in this case was attempting to enforce an adjudicator’s decision, but the defendant argued that the court should not grant enforcement and payment because the claimant was also the subject of a winding up petition. Other creditors of the claimant supported this petition, though some of their debts were disputed. The claimant was counting on receiving money from the defendant to pay off its debts.
The judge determined that, based on the information presented to him regarding the claimant’s debts and assets, he was being asked to make a decision on whether or not the winding up petition would be successful prior to the hearing of the petition.
The TCC could not issue such a judgement because it lacked evidence as to whether the company’s debts were legitimate. On that basis, the Judge decided that the TCC could not preempt the decision of the judge in the Insolvency Court, and thus, while evidence was presented that a winding-up petition had been filed against the company, there was no evidence as to whether it would be successful.
As a result, the TCC judge granted summary judgement for the amount claimed, but ordered that enforcement of that judgement be postponed until all of the parties’ disputes were resolved.
That, of course, is not a completely satisfactory solution from either party’s perspective. However, it is a sensible one, because a party can no longer argue that a winding up petition is an automatic and good defence in proceedings to enforce an adjudicator’s decision.
The rules governing insolvency are complicated and difficult to reconcile with the principle of adjudication, which is a decision that is only temporarily binding. But the TCC’s message is clear: it will order payment unless there are a few exceptional circumstances, and a winding-up petition is not one of them.