Building contract – Adjudication – Adjudicator making award in favour of defendant – Defendant obtaining default judgments – Claimants seeking recovery of alleged overpayments – Defendant applying for stay of proceedings pending claimants’ compliance with default judgments – Whether appropriate to order stay – Whether defendant entitled to security for costs – Applications granted
The claimants were Jersey-registered companies. In 2005 and 2006, they employed the defendant, which provided engineering services, on a number of interrelated development projects in London. Work on the projects ceased and, in 2007, payments of fees to the defendant came to an end.
The defendant commenced adjudication proceedings against the claimants for outstanding fees. The claimants argued that no moneys were due and the defendant had instead been overpaid. However, the adjudicator decided that the claimants should pay the defendant certain specified sums. He concluded that since the claimants had not secured the necessary notices under sections 110 and 111 of the Housing Grants, Construction and Regeneration Act 1996, as reflected in the engagement contracts, their arguments did not stand.
When the claimants failed to comply with the adjudicator’s decisions and the defendant commenced enforcement proceedings and obtained default judgments and final charging orders against the claimants’ properties.
The claimants brought proceedings against the defendant, claiming recovery of the alleged overpayments. The defendant applied to the court for the claimants’ proceedings to be stayed pending compliance with the default judgments and security for costs on the basis that: (i) the claimants were registered in Jersey; (ii) all the properties were charged with receivers; and (iii) the claimants would not be able to pay the costs of the proceedings.
Held: The applications were granted.
(1) Although the claimants had not followed the pre-action protocol process laid down for the Technology and Construction Court (TCC), para 1.2 of that protocol provided that a claimant was not required to comply with the protocol before commencing proceedings to the extent that those proceedings related to substantially the same issues as had been the subject of recent adjudication. Although the adjudicator had found it unnecessary to decide whether the defendant had been overpaid or the amount due, the parties had exchanged evidence and argument on those issues. Thus, the defendant was made aware of the claimants’ assertions. Accordingly, it would be inappropriate and disproportionate to stay the claimants’ proceedings to enable the pre-action protocol process to take place. The claimants came within one of the exceptions to the requirement that the protocol should be followed.
(2) However, CPR 3.1(2) empowered the court to stay the whole or part of any proceedings or judgment, either generally or until a specified date or event, and to take any other step or make any other order for the purpose of dealing with cases justly; one element was to ensure that the parties were on an equal footing. The court had the power and discretion to stay proceedings if justice required it, bearing in mind a party’s right to have access to justice and to issue and pursue proceedings. That power was to be used sparingly and in exceptional circumstances, including bad faith and the claimant’s oppressive or unreasonable behaviour.
Sections 108 to 111 of the 1996 Act provided that: (i) there were to be stage payments together with contractual procedures for determining what was due in respect of each of those payments; (ii) no sums could be set off or withheld unless the section 11 procedure was followed; (iii) a party to a construction contract could at any time refer a dispute to adjudication; and (iv) the adjudication decision was binding until the dispute was determined by the parties’ chosen dispute resolution process. In effect, an adjudicator’s decision that required payment by one of the parties involved a requirement to “pay now, argue later”. The contracts of engagement in the instant case reflected that framework.
The claimants had acted unreasonably and oppressively and in bad faith in pursuing their claims without first honouring the adjudicator’s decisions and the court judgments that enforced them. Accordingly, it was appropriate for the court to order a stay of proceedings until the claimants carried out what they were contractually required to do; pay the adjudication awards and, as was always agreed, argue later: Reed v Oury [2002] EWHC 369 (Ch) and Ali v Hudson (t/a Hudson Freeman Berg) [2003] EWCA Civ 1793; [2004] CP Rep 15 considered.
(3) This was a clear case for an order of security for costs. Under CPR 25.13, the making of the order had to be just and one of a number of conditions had to be satisfied. At least one of those conditions had been satisfied, namely that the claimants were resident out of the jurisdiction and were not resident either in a Brussels contracting state, a Lugano contracting state or a regulation state: see CPR 25.13(2)(a). Further, there was reason to believe that the claimants would be unable to pay the costs if ordered to do so: CPR 25.13(2)(c).
Michael Taylor (instructed by Berrymans Lace Mawer LLP) appeared for the claimants; David Sears QC (instructed by Mischon de Reya) appeared for the defendant.
Eileen O’Grady, barrister