Building dispute – Arbitration award – Enforcement – Claimant obtained charging order to enforce award under building contract – Defendant refusing to pay sum due – Court making interim third-party debt order – Claimant seeking to make order final – Whether court properly exercising discretion to make final third-party debt order – Whether respondent entitled to stay of execution of original judgment debt – Application dismissed and cross-application granted
The defendant company was the freeholder of commercial premises. It obtained financing from a building society and entered into a joint venture agreement with third parties to buy and develop the property.
The defendant engaged the claimant to carry out the development. However, their relationship deteriorated and there were a number of references to adjudication. The claimant was awarded extensions of time, totalling 60 weeks, following which it commenced an adjudication seeking loss and expense resulting from the delays. The adjudicator found in its favour. When the defendant failed to pay the sum awarded, the court gave judgment in favour of the claimant: see [2006] EWHC 848 (TCC); [2006] BLR 315.
The claimant sought to enforce the judgment by way of a charging order, but the defendant indicated that it was worthless because of the moneys owed to the building society, which were the subject of a first charge. However, the claimant relied upon the accounts of the defendant and the third parties to demonstrate that the latter owed significant sums of money to the former. It therefore obtained an interim third-party debt order, under CPR 72.4(2), requiring the third parties to pay the amount due. The claimant subsequently applied to the court to make the interim order final under CPR 72.2(1). The defendant made a cross-application, under RSC Order 47, for a stay of execution of the judgment made against it in 2006.
Both applications were disputed, raising an issue with regard to the proper exercise of the court’s discretion, under CPR 72, in circumstances where: (i) the judgment debt arose out of the enforcement of an adjudicator’s decision; (ii) a third-party debt order would affect those that were not parties to the original construction contract; and (iii) the adjudicator’s decision that led to the judgment debt had been disputed and was the subject of a forthcoming arbitration.
Held: The application was dismissed and the cross-application granted.
The fundamental requirement, before any final third-party debt order could be made, was that the relationship of creditor and debtor had to exist between the judgment debtor and the third party respectively. The latter had to owe money to the former. In particular, there had to be a present debt. Thus, under a building contract, money in the hands of the employer could not be attached until a certificate was issued by the architect because it was only then that the employer was liable to pay the contractor. A judgment creditor could not, by means of a third-party debt order, stand in a better position as regards the third party than did the judgment debtor: Webb v Stenton (1883) LR 11 QBD 518; Dunlop & Rankin v Hendall Steel Structures Pitchers (Garnishees) [1957] 1 WLR 1102; and Re General Horticultural Co, ex parte Whitehouse (1886) LR 32 Ch D 512 considered.
In the instant case, the only evidence of a debt came from the accounts of the defendant and the third parties, which were disputed. It would be wrong in principle for the court to find that a debt existed solely on the basis of disputed entries in the accounts. Analysing the arrangements between the three parties, it could not be said that debts were due and owing from the third parties to the defendant. On the balance of the evidence, there was no oral agreement under which the debts arising out of the profit/loss share would be ascertained and payable on a rolling or annual basis.
Even if the debts had been found to be owing, the court ought not to exercise its discretion in favour of the claimant in making final third-party debt orders because of the prejudice that such orders would cause to the third parties and the imminence of the pending arbitration and the issues involved: Interserve Industrial Services Ltd v Cleveland Bridge Ltd [2006] EWHC 741 (TCC) considered.
Finally, on the facts of the case, it was right to grant the stay of execution sought by the defendant. Given that the claimant had already had a final charging order in its favour, it was appropriate to restrain it from taking any further enforcement proceedings, at least until the arbitration had been concluded.
Hilary Stonefrost and Adam Constable (instructed by Taylor Wessing) appeared for the cliamant; Nicholas Baatz QC, Nicholas Peacock and Manus McMullan (instructed by Clyde & Co) appeared for the defendant; Richard Morgan (instructed by Kidd Rapinet, of Maidenhead) appeared for the third parties.
Eileen O’Grady, barrister
