Building contract – Adjudication – Adjudicator’s award – Enforcement – Respondent serving statutory demand in respect of sum awarded by adjudicator – Judge refusing appellants’ application to set aside statutory demand – Whether judge entitled to exercise discretion where judgment enforcing adjudicator’s decision – Appeal allowed– Adjudication – Adjudicator’s award – Enforcement judgment – Respondent serving statutory demand in respect of sum awarded by adjudicator – Judge refusing appellants’ application to set aside statutory demand – Whether judge erring in law — Whether judge entitled to exercise discretion where judgment enforcing adjudicator’s decision – Appeal allowed
The respondent agreed in writing to carry out building works to the appellants’ property for a contract price of £168,253. The works overran and the appellants became dissatisfied with the progress and quality of elements of the work. Therefore, certain interim certificates issued in accordance with the contract were not honoured. The respondent left the site, with each party contending that the other had repudiated the contract. The respondent submitted its final account valuation, which the appellants did not dispute.
The respondent served a notice of adjudication on the appellants, who did not participate on the ground that the adjudicator had no jurisdiction; that ground was subsequently held to be erroneous. The adjudicator decided the dispute and concluded that the respondent’s employment had been wrongly terminated and that it was entitled to damages of £80,954.55. The appellants unsuccessfully tried to resist enforcement proceedings.
The appellants served notice of arbitration on the respondent, claiming repayment of the sums due or paid in excess of the proper evaluation of the works as a result of the adjudicator’s decision. The respondent served statutory demands on the appellants, claiming that they owed the amount decided by the adjudicator. The district judge refused the appellants’ application to set aside the statutory demands under r 6.5(4) of the Insolvency Rules 1986.
He held that, although they were entitled to assert a genuine and substantial cross-claim that equalled or exceeded the amount claimed in the statutory demands, he should not set aside the demands because the appellants could afford to pay and there was no risk of them being made bankrupt and thus unable to pursue arbitration proceedings to have the adjudicator’s decision set aside. The appellants appealed.
Held: The appeal was allowed.
(1) The court should not refuse to set aside a statutory demand simply because the debtor appeared to have the means to pay. In the instant case, the district judge had erred in law in regarding this as a decisive or principal reason for refusing to set aside the statutory demands. Accordingly, the judge had erred in a material respect and it was necessary for the appeal court to decide whether the statutory demands should be set aside: Remblance v Octagon Assets Ltd [2009] EWCA Civ 581; [2009] NPC 79 applied.
Cases involving the enforcement of an adjudicator’s decision should be approached in the same way as any other case, by having regard to all the relevant circumstances. There was nothing to suggest that the court should start from the presumption that a debtor was not entitled to rely on a substantial and genuine cross–claim save where it would be oppressive to prevent him from doing so: Parke v The Fenton Gretton Partnership unreported 2 August 2000 considered.
(2) There was a clear difference between enforcing an adjudicator’s decision in the Technology and Construction Court, which would provide the platform for enforcement proceedings, and seeking to use that decision and/or the enforcement judgment to found bankruptcy proceedings. That was so even where there was a genuine and substantial cross–claim that the debtor was either actively pursuing or had been unable to pursue. Although the respondent had placed considerable emphasis on the policy behind the Housing Grants, Construction and Regeneration 1996 Act, that is, the “pay now litigate later” philosophy, there was nothing in the Act to indicate that it was intended to displace the position that applied to personal insolvency under r 6.5(4) of the 1986 Rules or to corporate insolvency by case law. The 1996 Act required the contract to provide that the decision of the adjudicator would be binding until the dispute was finally determined by legal proceedings or by arbitration; the obligation to pay the amount that the arbitrator held to be due was contractual.
In the instant case, it was clear that the appellant’s cross-claim was genuine and substantial and that it equalled or exceeded the amount of the statutory demand. The court’s discretion under r 6.5(4) should have been exercised in favour of granting the application to set aside the statutory demand.
The appellants appeared in person; Richard Bradley (instructed by CE Law, of Birkenhead) appeared for the respondent.
Eileen O’Grady, barrister