Construction — Adjudication — Statutory demand — Cross-claim — Insolvency Rules 1986 — Adjudicator’s award enforced by Technology and Construction Court — Statutory demand in respect of sum awarded by adjudicator — Application to set aside statutory demand on ground of cross-claim equalling or exceeding debt specified in statutory demand — R 6.5(4)(a) of 1986 Rules — Whether discretion to set aside exercisable where demand founded on judgment enforcing adjudicator’s award and debtor having ability to pay
The appellants engaged the respondent to carry out building works on the terms of a written minor works contract at a contract price of £168,253. The appellants became dissatisfied with the progress and quality of the works and did not honour certain interim certificates issued in accordance with the contract. The respondent left the site. Each party contended that the other had repudiated the contract. The respondent submitted its final account valuation, which the appellants disputed.
The respondent referred the dispute to adjudication under the Housing Grants, Construction and Regeneration Act 1996. The appellants declined to participate, having been advised, erroneously, that the adjudicator had no jurisdiction. 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 Technology and Construction Court (TCC) allowed the respondent’s claim to enforce the adjudicator’s award.
The appellants served notice of arbitration on the respondent, claiming the repayment of any sums due or paid as a result of the adjudicator’s decision that exceeded the proper evaluation of the works. The respondent served statutory demands on the appellants for the amount of the adjudicator’s award and subsequently issued bankruptcy petitions against the appellants.
The appellants applied to set aside the statutory demands, under r 6.5(4)(a) of the Insolvency Rules 1986, on the ground that they had a cross-claim that equalled or exceeded the amount of the debt claimed. The district judge found that the appellants had a genuine and substantial cross-claim but upheld the statutory demands on the ground that because the appellants could afford to pay, 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. When determining an application to set aside a statutory demand, in respect of a sum awarded in an adjudicator’s decision and enforced by a judgment of the TCC, the bankruptcy court should exercise its decision with regard to all the relevant circumstances. The authorities do not establish any rule that prevents a creditor from pursuing insolvency proceedings in the event of a genuine cross-claim. Nor, on the other hand, should the court start from a presumption that a debtor is not entitled to rely on a substantial and genuine cross-claim save where it would be oppressive to prevent it from doing so. Where such a cross-claim exists, the existence of a TCC judgment enforcing the adjudicator’s decision does not materially affect the position, since the grounds for opposing enforcement are circumscribed and do not permit reliance on a cross-claim. The “pay now, litigate later” philosophy of the 1996 Act does not displace the position applied to personal insolvency by r 6.5(4) of the 1986 Rules or to corporate insolvency by case law. Where a statutory demand is founded on an adjudicator’s decision and the debtor can show that it has a substantial cross-claim, it should not be prevented from raising those matters in opposition to bankruptcy proceedings simply because it could have raised, or even unsuccessfully did raise, those matters before the adjudicator. Further, the fact that the debtor is able to pay the sums due under the statutory demand is not a factor of any great weight and should not be regarded as a decisive or principal reason for refusing to set aside the demand. The district judge had erred in law in that respect and his decision was therefore set aside. Exercising the discretion afresh, it was appropriate to set aside the statutory demands in the instant case.
The following cases are referred to in this report.
AEI Rediffusion Music Ltd v Phonographic Performance Ltd (Costs); sub nom Phonographic Performance Ltd v AEI Rediffusion Music Ltd (Costs) [1999] 1 WLR 1507; [1999] 2 All ER 299, CA
Bayoil SA v Seawind Tankers Corporation (The Leonidas) [1999] 1 WLR 147; [1999] 1 All ER 374; [1999] 1 Lloyd’s Rep 211, Comm
Dennis Rye Ltd v Bolsover District Council [2009] EWCA Civ 372; [2009] 4 All ER 1140
Garrow v Society of Lloyd’s [1999] BPIR 668
Guardi Shoes Ltd v Datum Contracts [2002] Adj LR 10/28
Parke v Fenton Gretton Partnership [2000] Adj LR 08/02
Popely v Popely; sub nom Popeley v Popeley [2004] EWCA Civ 463; [2004] BPIR 778
Remblance v Octagon Assets Ltd; sub nom Octagon Assets Ltd v Remblance [2009] EWCA Civ 581; [2010] Bus LR 119
Shaw v MFP Foundations & Piling Ltd [2009] EWHC 493 (TCC)
This was an appeal by the appellants, Christopher Shaw and Gabrielle Shaw, from a decision of District Judge Smith refusing an application to set aside statutory demands served by the respondent, MPF Foundations & Piling Ltd, in respect of sums awarded in an adjudicator’s decision enforced by a judgment of the Technology and Construction Court.
Gabrielle Shaw appeared in person for the appellants; Richard Bradley (instructed by CE Law, of Birkenhead) represented the respondent.
Giving judgment, HH Judge Stephen Davies said:
Introduction
[1] This is an appeal from a decision of District Judge Smith made on 30 June 2009, in which he refused to set aside statutory demands served by the respondent on the appellants relating to a sum that an adjudicator appointed under the Housing Grants, Construction and |page:2| Regeneration Act 1996 (the HGCRA) had awarded to them and the subject of a judgment in enforcement proceedings in the Technology and Construction Court (TCC). Although the district judge refused permission to appeal, the appellants subsequently successfully obtained permission to appeal on 25 September 2009 on one ground, which was that:
The District Judge was wrong in law on the facts as he found them when he decided that although he was bound by the decision in George Parke v The Fenton Gretton Partnership (which was a case admitted by the District Judge as being “on all fours” with the present case) he would nevertheless exercise his discretion in the Respondent’s favour.
[2] In summary, what the appellants say is that although the district judge, as they say rightly, decided that they were entitled in law to assert a genuine and substantial cross-claim that equalled or exceeded the amount claimed in the statutory demands, he had erred in exercising his discretion not to set aside the statutory demands on the basis that, because they could afford to pay that amount, there was no risk of them being made bankrupt and thus being unable to pursue arbitration proceedings to have the adjudicator’s decision set aside.
[3] The appellants were also given permission to rely on further evidence on appeal, namely the first arbitral award of Mr Anthony Bingham published on 31 July 2009.
[4] On 16 October 2009, the respondent filed a respondent’s notice contending that:
1. A statutory demand should not be set aside on the grounds of a counter-claim, set-off or cross demand equalling or exceeding the amount of the debt specified in the statutory demand where the debt or debts in the statutory demand are based upon a judgement enforcing an adjudication award and bankruptcy proceedings are not being used in order to stifle a genuine counterclaim, set-off or cross demand.
2. The Appeal Court is not bound by the decision in George Parke v The Fenton Gretton Partnership.
[5] It will be apparent to those familiar with the scheme for construction adjudications established by Part II of the HGCRA that the cross-appeal raises the question as to whether a party to a relevant construction contract that has obtained an adjudicator’s decision in its favour and also obtained a judgment in the TCC enforcing that decision is entitled to pursue the losing party to insolvency even where the losing party has a substantial cross-claim against the sum awarded by the adjudicator. The respondent says that the losing party should not be entitled to rely on such a cross-claim; the appellants say that they should.
[6] It is convenient to begin by setting out the relevant facts as they were put before the district judge and as to which there was little or no substantial dispute so far as the hearing below and this appeal are concerned.
Relevant facts
[7] The appellants are the owners of a property known as East Lodge, Great Moreton Hall, Cheshire; the respondent is a building company. By a written contract dated 27 April 2007, made in the form of the minor works contract issued by the Architects and Surveyors Institute (August 1990 ed), the respondent agreed to carry out building works to the East Lodge for a contract price of £168,253. The “Adviser” appointed under the form of contract was a Mr Carter, the architect instructed by the appellants. So far as the conditions of contract are concerned, I need refer only to clause 6, which provided for interim payments and a final (“single”) payment on “proper completion of the work and defects and when the contractor’s account is approved and certified by the Adviser”, and clause 10, which provided for disputes to be put to the adviser in writing for his decision and if not resolved by that decision referred to arbitration. There was no contractual provision for adjudication, not surprisingly because the standard form used predated the HGCRA.
[8] Works were undertaken and the appellants made interim payments of £102,421. However, by early 2008, the works were overrunning, the appellants were dissatisfied with progress and with the quality of some of the works and interim certificates issued by the adviser had not been honoured. In February 2008, the respondent left site in disputed circumstances, each party contending that the other had repudiated the contract and that they had accepted the other’s repudiation. The respondent submitted its final account valuation, which was disputed by the appellants.
[9] On 27 August 2008, the respondent served a notice of adjudication on the appellants. Having referred to the contract, it stated:
On 11 February 2008 the Referring Party accepted your repudiation of the contract.
On 23 June 2008 the Referring Party submitted as its claim for damages arising from the Responding Party’s breach of contract its assessment of the value of the works it had completed at the date of your repudiation of the contract in the sum of £189,134.69 and indicating that it was due a further payment of £86,730.24.
You have failed to respond to the Referring Party’s assessment of the value of the works it has completed and have not made any payment in respect of the same. In the circumstances a dispute exists between the Referring Party and you as to the sums to be paid in respect of the work the Referring Party has undertaken at your instruction.
The Referring Party seeks an award of damages for your breach of contract and an adjudicator will be asked to determine what further sums if any are to be paid as damages to the Referring Party in respect of the works it carried out at the property and will be asked to make an award that:
1. That the Responding Party pay the Referring Party damages of £86,713.24 or such sum as the adjudicator shall decide being the unpaid value of the works, pleaded by the Referring Party at the date of the Responding Party’s breach of contract.
2. …
[10] I have set out the notice of adjudication at some length because its precise terms are relevant to a question canvassed during the course of the appeal in the light of the subsequent first arbitral award, namely the nature of the dispute referred to adjudication.
[11] The appellants, on advice, decided not to participate in the adjudication on the ground, subsequently held to be erroneous, that the adjudicator had no jurisdiction because the contract fell within the exception in section 106 of the HGCRA relating to construction contracts with residential occupiers. It appears that they were not advised to participate in the adjudication and thus to respond to the claim on the merits without prejudice to that jurisdictional objection, which undoubtedly would have been a course open to them. The adjudicator proceeded to decide the dispute and, by his decision dated 25 September 2008, decided that the respondent’s employment under the contract had been wrongly determined and that it was entitled to the payment of damages in the sum of £80,954.55.
[12] On 29 September 2008, Mr Wilson, the construction consultant then advising the appellants, wrote to the respondent’s solicitor, enclosing his evaluation of the respondent’s claim. This was a 25-page document that set out in some detail Mr Wilson’s evaluation of the value of the works, taking into account matters such as architect’s instructions, other additional works, works the subject of provisional sums, the cost of completing incomplete works and the cost of rectifying defective works. In summary, it valued the works at £113,619.45, which, having regard to payments already made, left a balance of £11,199.47 to pay. No payment was made by the appellants, not even the balance accepted due.
[13] On 10 October 2008, the respondent brought proceedings in Liverpool County Court, TCC list, to enforce the adjudicator’s decision. The appellants sought to resist enforcement on the ground that the adjudicator had no jurisdiction, but that argument was rejected by the TCC judge in Liverpool and again by Coulson J on appeal.
[14] In the meantime, on 13 January 2009, the respondent issued and served statutory demands on the appellants, claiming that they owed it the amount decided by the adjudicator they should pay, together with costs and judgment interest. A day earlier, on 12 January 2009, Mr Wilson, on behalf of the appellants, served a notice of arbitration on the respondent, claiming the “repayment of the sums due or paid in excess of the proper evaluation of the works as a result of the adjudicator’s decision”. An arbitrator was appointed but the respondent |page:3| took the point that the notice was premature because the appellants had not first submitted the dispute to the adviser for his decision, as was required by the contract, and the arbitrator agreed. It appears that the appellants then sought to refer the dispute to the adviser for his decision, but without success.
[15] The appellants also applied to set aside the statutory demands, but this process was delayed owing to various procedural mishaps that it is not necessary for me to detail, and, in March 2009, the respondent issued bankruptcy petitions against the appellants. On 7 April 2009, the appellants put in witness statements in support of their application to set aside the statutory demands, referring to the history of events and setting out in some detail their case as to the termination of the contract, the defects and their valuation of what was properly due under the contract as per the Wilson evaluation, which they suggested established a cross-claim in the sum of £74,798.82. The hearing of their application to set aside the statutory demands was listed for 30 June 2009.
[16] On 25 June 2009, the appellants paid the respondent a sum that their solicitor explained, in a subsequent witness statement, was intended to discharge the amount admitted due as per the Wilson evaluation, together with their liability for interest and costs. Some further payments were made in the days leading up to the hearing to ensure that all such undisputed sums were paid.
[17] In the meantime, on 19 June 2009, the appellants served a second notice of arbitration, the dispute referred being the proper valuation of the final account, including eight specified issues, one being the dispute concerning the “termination of the contract”. Acting with commendable speed, Mr Bingham was appointed on 25 June 2009 and, on 29 June 2009, gave directions with a view to making an initial decision about how the arbitration should proceed.
Hearing of 30 June 2009 and judgment of district judge
[18] As is apparent from the transcript of the hearing with which I have been provided, two points were taken by the appellants in support of their application. The first, in respect of which the district judge found against the appellants and in respect of which permission to appeal was refused, was an argument that the statutory demands were perplexing because of a change of name by the respondent and the failure of the statutory demands to make it clear who had issued the demands and on what basis. The second was that the appellants had paid all undisputed sums due to the respondent, and that there was a cross-claim that equalled or exceeded the amount claimed by the respondent. The appellants’ counsel referred to Parke (being a decision of HH Judge Boggis QC, sitting as a judge of the Chancery Division in Birmingham on 2 August 2000*) and submitted that this was authority for the proposition, contrary to the approach adopted by the TCC in respect of enforcing adjudicators’ decisions, that the bankruptcy court would not allow the winning party to bring insolvency proceedings against the losing party where there was a genuine cross-claim. In response, counsel for the respondent submitted, first, that save in exceptional circumstances, as to which there was none here, the existence of a genuine cross-claim could not prevent a party from bringing insolvency proceedings where it had the benefit of an adjudicator’s decision and a judgment enforcing that decision. His second submission was that the court had a discretion whether to set aside a statutory demand, that here the evidence showed that the appellants were able to pay but unwilling to do so, so that bringing insolvency proceedings would not prevent them from arbitrating the dispute already referred to adjudication, and that the court should not allow them deliberately to disregard the previous judgment of the TCC in enforcement proceedings.
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* Editor’s note: Reported at Parke v Fenton Gretton Partnership [2000] Adj LR 08/02
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[19] The district judge proceeded to give an admirable ex tempore judgment. He considered the authorities referred to by the respondent’s counsel that confirmed the approach taken by the TCC, and then considered Parke. He accepted that there appeared to be some tension between these decisions, but observed that there was a “qualitative difference between bankruptcy or other insolvency process and other mechanisms of enforcement, and that may well be that way in which the decisions can be reconciled”. He held that the decision in Parke, being a decision of a judge of the High Court directly applicable to the facts before him, was binding on him and, accordingly, he rejected the first submission by counsel for the respondent.
[20] He then, however, went on to consider the second submission of counsel for the respondent. He recorded that it was not disputed that the appellants were able to pay the sums claimed by the respondent. He then held as follows:
30. It therefore seems to me that there is no real issue of bankruptcy of Mr and Mrs Shaw. There is no real issue of the right to pursue the arbitration being lost because of a supervening bankruptcy. It seems to me that this is simply a decision for Mr and Mrs Shaw as to whether they choose to pay the amounts due or not. To set aside the statutory demand simply to require the respondent to pursue enforcement by other means of a sum that (it is quite clear both from the facts of the case and all the authorities I have referred to) is undoubtedly due, is a step which, in my judgment, on the facts of this case [is] not one which the court should take. I do have a discretion. For those reasons, I exercise my discretion and decline to set aside the statutory demands.
First arbitral award and subsequent conduct of the arbitration
[21] On 31 July 2009, Mr Bingham published his first arbitral award. This dealt only with the issue as to whether the respondent was or the appellants were entitled to treat the contract as having been wrongfully terminated by the other. Dealing only with a debate about whether the respondent was in breach in respect of the quality of the stonework windows and stonework surrounds to the patio doors, he answered that issue by deciding that it was in breach and that the appellants were entitled to treat the contract as having been terminated wrongly by the respondent.
[22] I should also record that I was informed at the appeal hearing that Mr Bingham has gone on to hear the remaining matters in dispute and has advised the parties that he has signed his award on the substantive issues that may be taken up on payment of his fees. There is, however, a dispute between the parties as to the payment of his fees, which has resulted in an unfortunate situation where the award is not yet available. This is particularly unfortunate because although there is a dispute as to the effect of the first arbitral award, it is common ground that this award, on the substantive issues, will be a final determination of the dispute decided on by the adjudicator and thus, pursuant to section 108(3) of the HGCRA and para 23(2) of the scheme for construction contracts, will effectively supersede the adjudicator’s decision. It follows that this award is likely to be determinative of the respondent’s ability to proceed with the bankruptcy petitions, irrespective of the decision on this appeal. None the less, it appears that there will be costs and, possibly, other consequences arising out of this appeal that will have to be determined regardless, so that it is common ground that I must determine this appeal on the basis of what is currently before me.
Relevant principles applicable to this appeal
[23] It is common ground that this appeal is against the decision by the district judge of a matter in respect of which he had a discretion, and that it is not a rehearing. As set out by Lord Woolf in AEI Rediffusion Music Ltd v Phonographic Performance Ltd (Costs) [1999] 1 WLR 1507, at p1523:
Before the court can interfere it must be shown that the judge has either erred in principle in his approach, or has left out of account, or has taken into account, some feature that he should, or should not, have considered, or that his decision was totally wrong because the court is forced to the conclusion that he has not balanced the various factors fairly in the scale.
Appellants’ appeal
[24] The central focus of the appellants’ appeal, summarised in paras 30 and 31 of the skeleton argument that accompanied their appeal notice, was that it is wrong and contrary to established law that the court should refuse to set aside a statutory demand simply because the debtor appears to have the means to pay. They placed particular reliance on a decision of the Court of Appeal, given on 17 June 2009 and to which |page:4| District Judge Smith was not referred, in Remblance v Octagon Assets Ltd [2009] EWCA Civ 581*.
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* Editor’s note: Reported at [2010] Bus LR 119
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[25] In Remblance, the facts were that the creditor had served a statutory demand on the debtor, as guarantor, for rent due from his company, which it had covenanted to pay “without deduction or set off”. The debtor’s company had a counter-claim for damages for breach of covenant of quiet enjoyment, which it was pursuing in the county court. It was common ground that if the creditor had served a statutory demand on the company, it would have been able successfully to apply to set it aside on the ground that, pursuant to r 6.5(4)(a) of the Insolvency Rules 1986 (the 1986 Rules), it appeared to have a counter-claim equalling or exceeding the amount of the debt specified in the statutory demand. Equally, however, it was common ground that the appellant, as guarantor, was unable to set up that counter-claim, with the result that he could not bring himself within that sub-rule. He argued, however, that he was entitled to bring himself within the residual ground provided for by sub-rule 6.5(4)(d), where the court is entitled to set aside the statutory demand if it is satisfied, on other grounds (that is, on grounds other than those appearing in sub-rules (a) to (c) inclusive), that the demand ought to be set aside. The district judge had agreed, but her decision had been overturned on appeal by the High Court judge. He had held that he would have acceded to the appellant’s argument that it was unfair to allow the creditor to proceed to bankruptcy against the appellant, as guarantor, when it could not have proceeded to wind up against the company as principal debtor, save for one point, which was that the appellant could pay the amount claimed so that there was no risk that he would be made bankrupt in respect of that amount. Dyson and Ward LJJ allowed the appeal; Mummery LJ would have dismissed the appeal.
[26] Dyson LJ said, in [44] and [45] of his judgment:
44. Sub-paragraph (a) provides that, if one of the conditions specified in the sub-paragraph is met, then the court may set aside the demand. I accept that the court retains a discretion not to do so even if one of the conditions is satisfied. But it seems to me that, if one of the conditions is satisfied, then the demand will usually be set aside. That is because it will usually be unjust to require the principal debtor to face the consequences of bankruptcy if he appears to have a counterclaim, set-off or cross demand. There may be circumstances where the principal debtor’s ability to pay is a relevant factor. But as Nicholls LJ said [in Re A Debtor [1989] 1 WLR 271, at p276D], the theme running through rule 6.5(4) is that a statutory demand will be set aside where it is just to do so. In my judgement, it is difficult to see how it can be just not to set aside a demand where the principal debtor satisfies one of the conditions in sub-paragraph (a) merely because he can afford to pay the debt.
45. It has not been suggested (rightly in my view) that, even where the principal debtor appears to have a bona fide arguable counterclaim, set-off or cross demand, an application to set aside a statutory demand under sub-paragraph (a) should be dismissed because he has the means to pay the debt that he owes to the creditor. Were the position to be otherwise, it could always be said of a principal debtor who has the means to pay the debt that he has the ability to avoid the consequences of a bankruptcy and that his application to set aside the statutory demand should be dismissed for that reason. Ability to pay would always be a trump card in the hands of the creditor in answer to such an application. I would add that, if ability to pay were fatal to an application to set aside a statutory demand, one would have expected that to be spelt out in the rules.
[27] Accordingly, in [48], Dyson LJ concluded that the judge had been wrong to consider that the fact that the appellant had the means to pay the debt was an important factor that militated against setting aside the statutory demand. He added:
I would not rule out the possibility that ability to pay may be a relevant factor in certain circumstances. But for the reasons that I have given, I find it difficult to conceive of circumstances where ability to pay can be the sole or principal reason for refusing to set aside a statutory demand. No such circumstances have been identified in the present case.
[28] In this case, it is clear from the argument and from the decision of District Judge Smith, to which I have already referred, that the decisive or principal reason that he gave for exercising his discretion not to set aside the statutory demand was that he was satisfied that the appellants were able to pay the sums due, so that there was no real risk that they would be prevented by bankruptcy from pursuing the arbitration to overturn the adjudicator’s decision. In my judgment, it follows from the decision in Remblance that it was wrong as a matter of law for the district judge to have regarded this as a decisive or a principal reason for refusing to set aside the statutory demands. Of course, in fairness to District Judge Smith, he can scarcely be criticised for approaching the matter in the way that he did when he was not referred to Remblance, which had only recently been decided.
[29] It appears from [30] of his judgment that the only other point taken into account by the district judge was that he thought that the only consequence of setting aside the statutory demand would be that the respondent would be able to enforce the judgment obtained from the TCC by other means, and that this was not a step that the court should, on the facts of this case, require the respondent to have to take. However, it is clear from his decision that this was a supplementary rather than a decisive or principal reason for his decision. Furthermore, it is not immediately apparent why it would be wrong to set aside the statutory demands, so as to prevent the respondent from using bankruptcy as a means of enforcement, simply because the respondent would be entitled to seek to enforce the judgment in other ways. If the respondent here was able to enforce its judgment against the appellants by, for example, obtaining a third-party debt order against funds standing to their credit in their bank account, that is something they would be perfectly entitled to do. It does not seem to me that their ability to do so could be relevant to the exercise of the discretion as to whether to allow the respondent to seek to bankrupt them instead or as well. The point, as Ward LJ observed in Remblance, is that bankruptcy is a draconian step, especially when compared to other means of enforcement and, as Dyson LJ observed in [50] of the judgment: “The question whether execution of a judgement should be stayed is distinct from the question whether a statutory demand should be set aside.”
[30] In his submissions before me on appeal Mr Richard Bradley, for the respondent, submitted that this case could be distinguished from Remblance because the statutory demand was based on an adjudicator’s decision that had already been the subject of an enforcement judgment that the court had refused to stay and where the policy of parliament, as shown in the HGCRA, is to require adjudicators’ decisions to be paid pending final determination of the dispute regardless of any cross-claim.
[31] It does not seem to me, however, that these arguments can prevail so far as seeking to justify the decision on the basis that the district judge did in this case. It is apparent that the district judge did not purport to decide the case on the basis that these factors, taken together with the appellants’ ability to pay, justified him in exercising his discretion against setting aside the statutory demands. To the contrary, his decision was that, following the approach in Parke, a debtor was entitled to rely on cross-claims even in cases where the statutory demand was founded on an adjudicator’s decision, treated as the equivalent of a judgment.
[32] In my judgment, therefore, the district judge did err in a material respect, so that the appeal should be allowed on this basis and, accordingly, it is necessary for this appeal court to exercise the discretion afresh. I must therefore go on to consider the respondent’s cross-appeal and, in the light of my conclusions about that, to consider whether or not the statutory demands should be set aside.
Respondent’s cross-appeal
[33] Before the district judge, Mr Bradley submitted that, as a matter of principle, the court should never exercise its discretion under r 6.5(4) to set aside a statutory demand where the creditor has a judgment in its favour enforcing an adjudicator’s decision. In his skeleton argument produced for this appeal, adopted in his oral submissions before me, Mr Bradley’s submission was more nuanced, and was as follows:
11.5.1 Where the court is faced by an application to set aside a statutory demand issued in support of a judgement based upon an adjudication award |page:5| it has a discretion as to whether or not to set aside that statutory demand. In exercising that discretion the court should give great weight to the policy of the 1996 Act, namely that adjudicator’s awards are to be paid and execution of judgments based upon adjudicator’s awards should not be delayed pending final determination of the dispute whether by litigation or arbitration. However, in exercising the discretion the court should be alive to the possibility that bankruptcy proceedings could be used to stifle genuine litigation to finally resolve the dispute provisionally determined by adjudication. Therefore, if the evidence suggests that bankruptcy proceedings are being used to prevent a party pursuing a genuine dispute the statutory demand should be set aside. If however the position is that the court has refused a stay of execution based upon the inability of the claimants to repay an award (as it has in this case) and, if it is clear that the debtor has the funds to pay the judgment sum (as is the case in this matter) then, the discretion should be exercised against the setting aside of the statutory demand.
11.5.2 A late issue of a statutory demand shortly before the final determination of the dispute by arbitration or litigation would also lead to the exercise of the discretion to set aside the demand on the grounds that it was being used oppressively.
[34] Mr Bradley submitted that in so far as the decision in Parke is inconsistent with that approach, it is wrong. He referred me to, and relied on, the subsequent decision of Ferris J in Guardi Shoes Ltd v Datum Contracts 28 October 2002*. In oral argument, he also submitted that the requirements for relying on a cross-claim, as stated by the Court of Appeal in Bayoil SA v Seawind Tankers Corporation (The Leonidas) [1999] 1 Lloyds Rep 211 (namely that a cross-claim had to have substance, be in an amount exceeding the amount of the debt and also one that the company had been unable to litigate), were not satisfied in this case because the appellants had been able to raise the arguments that they now advance before the adjudicator but had chosen not to do so.
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* Editor’s note: Reported at [2002] Adj LR 10/28
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[35] Mr Bradley also submitted that the first arbitral award of Mr Bingham did not, on proper analysis, finally determine the dispute referred to and decided by the adjudicator and, thus, was irrelevant.
[36] Mrs Gabrielle Shaw, by contrast, submitted that there was no reason to treat the case of a statutory demand founded on a judgment enforcing an adjudicator’s award as being any different from any other case in which the debtor could show a genuine cross-claim and, thus, that the approach in Parke should be followed. She submitted that there was in law no requirement that the cross-claim had to be one that the debtor had been unable to litigate, and, moreover, that even if there were in this case the district judge had accepted that, from January 2009 onwards, the appellants had indeed been endeavouring to have the dispute referred to the adjudicator finally determined by arbitration. She submitted that the first arbitral award of Mr Bingham did, properly analysed, finally determine the dispute referred to the adjudicator and, on proper analysis, removed the essential foundation of the claim referred to the adjudicator and accepted by him, namely that the respondent was entitled to damages as a result of the appellants’ wrongful repudiation of the contract.
Discussion
[37] I should begin by setting out Part 6.5(4) of the 1986 Rules, which provides that on the hearing of an application to set aside a statutory demand:
The court may grant the application if
(a) the debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt or debts specified in the statutory demand; or
(b) the debt is disputed on grounds which appear to the court to be substantial; or
(c) it appears that the creditor holds some security in respect of the debt claimed by the demand, and either Rule 6.1(5) is not complied with in respect of it, or the court is satisfied that the value of the security equals or exceeds the full amount of the debt; or
(d) the court is satisfied, on other grounds, that the demand order ought to be set aside.
[38] Next, I should refer to Bayoil, which was a company winding-up case, as opposed to a bankruptcy case. The facts were that the petitioner was a shipowner that chartered a ship to the company. It made a claim for freight, but the company asserted a counter-claim for damages for breach of the charter. Both claim and counter-claim were referred to arbitration. The arbitrators, acting in accordance with the well-established common law rule that freight must be paid free of all deductions, made a summary interim award in favour of the petitioner for its claim for freight, leaving the counter-claim to be arbitrated in the normal way. The petitioner then proceeded to seek to wind up the company and, at first instance, the judge, who accepted that the counter-claim was genuine and serious and, moreover, was one that it had been unable to arbitrate to a conclusion, none the less held that his jurisdiction was at large and that he should exercise it in favour of making a winding-up order. The Court of Appeal held that the discretion in such a case ought to be exercised in favour of the company in the absence of special circumstances. Nourse LJ also rejected the petitioner’s submission that the “finality and unappealability of the interim award” was a special circumstance.
[39] As has already been noted, Nourse LJ also held that it was a requirement in such a case that the cross-claim had to be one that the company had been unable to litigate. However, Mrs Shaw was able to refer me to a more recent decision of the Court of Appeal in Dennis Rye Ltd v Bolsover District Council [2009] EWCA Civ 372*, in which Mummery LJ, in [19], in a judgment with which Elias LJ agreed, referred to Bayoil and to two subsequent first instance decisions in the Companies Court and said:
The authorities are illustrations of the well established practice of the Companies Court that, if a company has a genuine and serious cross-claim, which is likely to exceed the petition debt, the court will normally exercise its discretion by dismissing the winding up petition and allowing the Company the opportunity to establish its cross-claim in ordinary civil proceedings. A company is not prevented from raising a cross-claim in winding up proceedings simply because it could have raised or litigated the claim before the presentation of the petition or it has delayed bringing proceedings on the cross-claim. The failure to litigate the cross-claim is not necessarily fatal to a genuine and serious cross-claim defeating a winding up petition. However, in deciding whether it is satisfied that the cross-claim is genuine and serious, the court is entitled to take into account all the relevant circumstances, such as the fact that a company has not even attempted to litigate the cross-claim, or that there are reasons why it has not done so.
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* Editor’s note: Reported at [2009] 4 All ER 1140
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[40] Mrs Shaw also pointed out that neither r 6.5(4) nor para 12.4 of the Practice Direction Insolvency Proceedings make any reference to there being any requirement that the debtor had been unable to litigate the counter-claim, set-off or cross-demand.
[41] In my judgment, it is apparent from the decision in Dennis Rye that even in corporate insolvency cases it is no longer a requirement that the company has been unable to litigate its counter-claim, set-off or cross-demand; that is something that may be a relevant circumstance in a particular case, but it is not decisive. Furthermore, I accept Mrs Shaw’s submission that the law applicable to companies winding up is not necessarily applicable to personal insolvency, where the Insolvency Act 1986 and the 1986 Rules introduced a new code.
[42] The approach that the TCC takes to the enforcement of adjudicators’ decisions is also not in dispute. It was succinctly summarised by Coulson J in his decision on appeal in this case, reported at [2009] EWHC 493 (TCC) as follows:
15. The law in this area is clear and can be condensed into a few simple propositions:
(a) Absent a want of jurisdiction or a failure to comply with the rules of natural justice, the court will enforce the decision of an adjudicator. The position was summarised by Chadwick LJ in Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2005] EWCA Civ 1358 in these terms:
85. The objective which underlines the Act and the statutory scheme requires the courts to respect and enforce the adjudicator’s decision unless it is plain that the question which he has decided was not the question referred |page:6| to him or the manner in which he has gone about his task is obviously unfair. It should be only in rare circumstances that the courts will interfere with the decision of an adjudicator. …
86. It is only too easy in a complex case for a party who is dissatisfied with the decision of an adjudicator to comb through the adjudicator’s reasons and identify points on which to present a challenge under the labels “excess of jurisdiction” or “breach of natural justice”. … The task of the adjudicator is to find an interim solution which meets the needs of the case. Parliament may be taken to have recognised that, in the absence of an interim solution, the contractor (or sub-contractor) or his sub-contractors will be driven into insolvency through a wrongful withholding of payments properly due. The statutory scheme provides a means of meeting the legitimate cash flow requirements of contractors and their sub-contractors. The need to have the “right” answer has been subordinated to the need to have an answer quickly.…
87. In short, in the overwhelming majority of cases, the proper course for the party who is unsuccessful in an adjudication under this scheme must be to pay the amount that he has been ordered to pay by the adjudicator. If he does not accept the adjudicator’s decision is correct (whether on the facts or in law) he can take legal or arbitration proceedings in order to establish the true position. …
(b) The paying party can, as Chadwick LJ indicated, issue a claim form or an arbitration notice in order to obtain a substantive decision on the merits, and that may lead to some or all of the money, originally ordered to be paid by the adjudicator, being repaid to the paying party. But that does not affect the temporary finality of the adjudicator’s decision, or the directive that that decision must be complied with and, if necessary, enforced by the court.
(c) The fact that the paying party has commenced substantive arbitration proceedings is usually irrelevant to the successful parties right to enforcement (and indeed execution) of any judgment: see Harlow & Milner v Teasdale (No 2) [2006] EWHC 535 (TCC).
(d) The only authority of which I am aware in which the existence of ongoing arbitration proceedings affected the mechanics of enforcement is my decision in Kier Regional Ltd v City & General (Holborn) Ltd [2008] EWHC 2454 (TCC). But that was a case where the enforcement of an adjudicator’s decision had in fact been ordered by the court in 2006. The difficulty was that the claimants had done nothing to execute that judgement and only sought charging orders and the like at a time when the substantive arbitration was only a few weeks away. In those wholly exceptional circumstances I granted a stay of execution.
[43] Turning next to the decision in Parke, the facts were that the creditor had obtained an adjudicator’s decision against the debtor, Mr Parke, in respect of its final account claim, in circumstances where it appears that Mr Parke had received little or no notice of the adjudication. By the time the application to set aside the statutory demand was heard by the district judge, Mr Parke had already commenced proceedings in the TCC, arguing that the true final account showed a balance payable in his favour, but for some reason the district judge was not made aware of this fact. On appeal, the judge considered that this factor justified him in looking at the matter afresh, and he held that although the adjudication did create a debt that failed to be treated in the same way as a judgment or order, none the less Mr Parke had a valid cross-claim. In response to an argument that to allow Mr Parke to rely on the cross-claim would be contrary to the scheme of the HGCRA, the judge said, in [17], that:
In my judgment it cannot be right that an employer or main contractor can be made bankrupt when it is known that he has proper proceedings on foot which if successful will result in a payment to him. I do not accept that the scheme of the 1996 Act is that an adjudication can be pursued to bankruptcy no matter the underlying state of account. The court would be required to close its eyes to the overall position, which in the context of bankruptcy is in my judgment wrong in principle.
[44] It appears clear, therefore, that, in Parke, the judge was not prepared to accept the argument that the approach taken by the TCC to enforcement proceedings should also be applied to bankruptcy proceedings.
[45] Turning then to Guardi, the facts in that case were that the company sought an injunction restraining the petitioner from advertising its winding-up petition. The petition had been presented some 11 months after the works the subject of the claim were completed, in circumstances in which the company had failed to serve a withholding notice as required under the HGCRA against the petitioner’s claim for payment, with the result that the petitioner obtained an adjudicator’s decision in its favour, and subsequently a consent judgment in the TCC enforcing that decision. Furthermore, the company made various payments to the petitioner under the judgment. It was not until after the presentation of the petition that the company first produced evidence of a counter-claim for defective work. In those circumstances, although Ferris J, not surprisingly, was unconvinced by the counter-claim, none the less he was prepared to accept that it was “not obviously without substance”. He held that it was appropriate to restrain advertisement only if the court were satisfied either that the debt asserted was disputed to the knowledge of the petitioner on substantial grounds and in good faith or if the court could be certain that the petition was bound to be dismissed. He decided that he was satisfied on neither point, saying that: “The whole situation is very unconvincing and to my mind smacks of an attempt to drag together sufficient grounds to get the advertisement of the petition restrained.”
[46] He went on to refer to Bayoil and the two subsequent first instance decisions referred to in Dennis Rye and held that that the circumstances surrounding the supposed inability to litigate were of crucial importance. He observed that, in the case before him, the claim and alleged cross-claim were closely connected, and held that in those circumstances the company’s failure to serve the appropriate withholding notice, which if it had been served would have put payment into suspense until both claim and counter-claim were adjudicated on, meant that the company had only itself to blame.
[47] In my judgment, there is no inconsistency between the decisions in Parke and in Guardi. It seems to me that, in Guardi, Ferris J was not purporting to hold that a creditor under an adjudicator’s decision, with or without a TCC judgment enforcing that decision, was entitled to pursue insolvency proceedings against the debtor even where there was a genuine counter-claim that the debtor had been unable to litigate. There is nothing in his judgment that suggests to me that he was intending to do anything other than to decide the case in front of him on its own particular facts. It seems to me that, in that case, he was concentrating his focus on the particular circumstances that, in his judgment, did not make it unjust for the petitioner to pursue insolvency proceedings, specifically the unconvincing nature of the company’s counter-claim, its failure to serve a withholding notice and its failure to take any steps to refer the dispute to final determination in the considerable period of time from practical completion.
[48] Furthermore, and by the same token, it does not seem to me that, in Parke, HH Judge Boggis QC was purporting to hold that there was a rule that would prevent a creditor from pursuing insolvency proceedings in any such case. In my judgment, he was also focusing on the particular circumstances of the case and concluding that the existence of proceedings on foot by the date of the hearing before the district judge to assert what he was satisfied was a genuine and substantial cross-claim made it unjust for the creditor to be permitted to pursue bankruptcy proceedings against Mr Parke.
[49] It follows, in my judgment, that there is no authority, binding or persuasive, that supports either of the extreme propositions contended for by the respective parties in this case. In my judgment, the bankruptcy court, when faced with an application to set aside a statutory demand in such cases, will have regard to all relevant circumstances, and will not be circumscribed in the exercise of its discretion in the manner contended for by either party.
[50] So far as the respondent’s position is concerned, in my judgment there is a clear difference between enforcing an adjudicator’s decision in the TCC, which itself will provide the platform for the usual panoply of enforcement proceedings, and seeking to use that decision and/or the enforcement judgment to found bankruptcy proceedings even where there is a genuine and substantial cross-claim that the debtor is either actively pursuing or for genuine reasons has been unable to pursue thus far. Although the respondent places considerable emphasis on the policy behind the 1996 Act, that is, the pay-now litigate-later philosophy, there is nothing, in my judgment, either in the Act or in the scheme that indicates that it was intended that this should displace the |page:7| position as applied to personal insolvency by r 6.5(4) of the 1986 Rules or, for that matter, to corporate insolvency by case law. The structure of the HGCRA is to require the contract to provide that the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings or by arbitration (section 108(3) of the HGCRA), so that the obligation to pay the amount decided due by the adjudicator is a contractual one. That, it seems to me, is not fundamentally different from the common law rule in respect of payment of freight without deduction, which does not override the normal position in insolvency (see Bayoil) nor from the contractual “pay now, sue later” clause unsuccessfully relied on by Lloyds in Garrow v Society of Lloyd’s [1999] BPIR 668. Moreover, it appears that the “pay-as-you-go” ethos of the Civil Procedure Rules did not prevent a debtor from relying on a cross-claim in response to a statutory demand founded on a costs order: Popely v Popely [2004] EWCA Civ 463; [2004] BPIR 778. In both of the latter cases, the decisions to that effect by the judge at first instance were upheld by the Court of Appeal.
[51] Although I recognise that Mr Bradley’s revised formulation of the appropriate test on appeal does give more weight to the individual circumstances of the case, and thus requires the court to be vigilant to prevent abuse of the insolvency procedure from causing injustice to the debtor by preventing it from litigating its claim, I am still not prepared to accept that the court should start from the presumption that a debtor is not entitled to rely on a substantial and genuine cross-claim save where it would be oppressive to prevent it from so doing.
[52] So far as the appellants’ argument is concerned, for the reasons that I have given, I am satisfied that the decision in Parke is not one that purports to lay down any general principle. It seems to me that cases involving the enforcement of adjudicator’s decisions should be approached in the same way as any other case, that is, by having regard to all relevant circumstances. I can well see that in some cases, such as in Guardi, the failure to serve a withholding notice, as is required by section 111 of the HGCRA, if coupled with a failure to commence arbitration or litigation within a short compass of the adjudicator’s decision and an asserted cross-claim not supported by convincing evidence, would justify a court in refusing to set aside a statutory demand.
Exercise of discretion
[53] In this case, it appears to me to be clear on the evidence that the appellants’ cross-claim is one that is both genuine and substantial and that it equals or exceeds the amount of the statutory demand. That is not surprising, since it is the subject of an extremely detailed and comprehensive evaluation by Mr Wilson, as I have already observed.
[54] Although, in para 11.6 of his written submissions on appeal, Mr Bradley suggested that even on the appellants’ own case they were still indebted to the respondent in a sum greater than £750, he did not pursue that in oral submissions, nor was it pursued before the district judge. Indeed, it appears inconsistent with the evidence of the appellants put before the district judge, which was in terms that they had paid everything that they did not dispute, and it appears from the items referred to in this subparagraph that Mr Bradley is seeking to include sums not referred to in the statutory demands, which is not permissible.
[55] At one stage in argument, I did raise the question as to whether the appellants’ case was, on true analysis, a cross-claim, as opposed to a combination of defence and cross-claim. In many final account claims, it is likely that the grounds for challenging the claim are a combination of arguments concerning either the extent or valuation of the work done or the entitlement to payment for extra works (both of which would appear to be simple matters of defence) and complaints concerning defects and or delays (which could be matters of abatement, set-off, cross-claim or counter-claim). The point may be significant where the creditor has obtained a judgment enforcing the adjudicator’s decision because, under para 12.3 of the insolvency practice direction, it is provided that:
Where the statutory demand is based on a judgment or order, the court will not at this stage go behind the judgment or order and enquire into the validity of the debt nor, as a general rule, will it adjourn the application to await the result of an application to set aside the judgment or order.
[56] This may raise an interesting issue as to the correct approach where the grounds for setting aside the statutory demand could be said to raise a genuine dispute concerning the merit of the claim allowed by the adjudicator as well as counter-claims, set-offs or cross-demands. However, it is not one that I have to deal with because it is quite apparent that the argument before the district judge proceeded on the undisputed basis that the Wilson evaluation provided a cross-claim that, if established, would equal or exceed the claim, and Mr Bradley did not seek to submit to the contrary on appeal. It may be that para 12.3 is intended to apply to the case of judgments only in cases where the debtor has had the opportunity (even if it has not taken it) of setting out the grounds for disputing the debt the subject of the statutory demand. In an enforcement action in the TCC, of course, the debtor is not permitted to defend by arguing that the adjudicator’s decision was wrong on the merits, so that the rationale behind para 12.3 should not apply. A similar but connected argument would be that an enforcement judgment in the TCC is intended only to give temporary finality to the adjudicator’s award, so that again it should not be regarded in the same way as a judgment in ordinary proceedings that, subject to subsequent setting aside or appeal, is final and conclusive for all purposes.
[57] Mr Bradley did, however, submit that it was a relevant factor that the appellants chose not to participate in the adjudication, where they could have set up the matters raised in the Wilson evaluation. I accept that it is a relevant factor, but it does not seem to me that it has any great weight in this case. First, it is quite apparent that the reason they chose not to participate in the adjudication was not because they did not believe that their case on the merits lacked substance; instead, it was because of advice (subsequently proved to be incorrect) that the adjudicator lacked jurisdiction. Second, the whole essence of adjudication is that it provides a speedy but temporary determination; as has been said on many occasions, it is implicit in the scheme that mistakes will be made and a wrong decision may be arrived at. Parliament must be intended to have contemplated that the injustice that might be caused by an unsuccessful party having to pay up under a wrong decision would be ameliorated by the opportunity to overturn the decision by subsequent litigation or arbitration. It follows, in my judgment, that where a statutory demand is founded on an adjudicator’s decision, if the debtor can show that it has a substantial cross-claim, the insolvency regime does not contemplate that it should be shut out from raising those matters in opposition to bankruptcy proceedings simply because it could have, or even unsuccessfully did, also raise those matters before the adjudicator.
[58] The respondent has not sought to suggest that the appellants failed to take prompt steps to litigate or arbitrate the adjudicator’s decision after it was promulgated. As is apparent from the chronology, and as the district judge found, the appellants attempted to bring arbitral proceedings in January 2009, but were frustrated by the respondent’s reliance on the contractual dispute resolution clause. This is not intended as a criticism of the respondent, which was perfectly entitled to take this point, but it does explain the reason for the delay in commencing the arbitration proceedings in June 2009. Furthermore, the respondent has not sought to criticise the delay between receipt of the adjudicator’s decision in late September 2008 and the initial attempt to arbitrate in January 2009. It is apparent from the procedural chronology that, over this period, the appellants had already submitted the Wilson evaluation to the respondent and were awaiting its response and were also engaged in responding to the respondent’s commencement of enforcement proceedings in the TCC.
[59] In any event, by the time the application to set aside the statutory demands came on before District Judge Smith, the appellants had commenced arbitration to seek to have the adjudicator’s decision finally determined.
[60] Mr Bradley submitted that it is a relevant factor that the adjudicator’s decision has been the subject of a TCC judgment to enforce it, which itself has been the subject of an unsuccessful appeal |page:8| to Coulson J. He also submitted that it is a relevant factor that the TCC has rejected the appellants’ application for a stay of enforcement. In my judgment, these factors are of little or no weight in this case. It does not seem to me that the existence of a judgment enforcing the adjudicator’s decision materially affects the position where there is a genuine and substantial cross-claim; not least because, as Coulson J explained in that part of his decision on appeal to which I have already referred, the grounds for opposing enforcement in such circumstances are so circumscribed and, in particular, do not permit reliance on a cross-claim. By the same token, the fact that the TCC has rejected the application for a stay is not surprising, given the extremely limited circumstances in which the TCC would allow a stay in an adjudication enforcement case.
[61] Mr Bradley submitted that the appellants’ ability to pay is a relevant factor. For the reasons given by the majority of the Court of Appeal in Remblance, it does not seem to me that this is a factor of any great weight. It is quite apparent, in my judgment, that the appellants assert a cross-claim on substantial grounds and take the view that because they are not truly indebted for this amount they should not have to pay it. Indeed, it is also apparent, regardless of whether this is justified, that one reason for their unwillingness to pay is their concern that they will be unable to recover that money if as they expect they are successful in the arbitration. That is tied in, in this case, with the fact that there has undoubtedly been a rather curious state of affairs whereby those who control the respondent have engaged in a number of corporate name changes and other procedures that, rightly or wrongly, have understandably given the appellants cause for concern.
[62] Accordingly, and even before any question of the subsequent first arbitral award falls to be considered, if I had been exercising my discretion on 30 June 2009 I would unhesitatingly have exercised my discretion under r 6.5(4) in favour of granting the application to set aside the statutory demands.
Effect of first arbitral award
[63] I am reinforced in my decision when I come to consider the first arbitral award. It is quite apparent, in my judgment, that the dispute that was referred to the adjudicator was the respondent’s claim for damages for what they contended was the appellants’ repudiatory breach of contract. Although Mr Bradley has valiantly attempted to argue that what, in substance, was referred to the adjudicator was the respondent’s final account claim, either as an alternative to the breach of contract claim or as, in effect, the only claim made, I am unable to accept that submission. It is quite clear from the evidence that it would have been open to the respondent to advance a claim based, for example, on the non-payment of earlier certificates or, it would appear, on the adviser’s certification of its final account claim. However, it is quite plain to me that this is not what it did; the wording of the notice of adjudication is quite clear. Although I accept that the claim for “damages of £86,713.24” is qualified by the addition of the words “or such other sum as the adjudicator shall decide being the unpaid value of the works completed by the referring party at the date of the responding party’s breach of contract”, it is apparent, in my judgment, that this was not intended to set up a separate final account claim, independent of the claim for damages for breach of contract. It is simply a way of saying that the claim for damages is made by reference to the unpaid value of the works as at that date, and that the respondent is inviting the adjudicator either to award the sum that they contend represents that value, or such other sum as he may decide represents that value.
[64] In so finding, I am conscious that one should not seek to construe a notice of adjudication as though it were a statute or a carefully drafted contractual provision, but none the less it seems to me that its meaning is clear. Moreover, although I am also conscious that it is the notice of adjudication, read in its proper factual matrix, that identifies the dispute referred to the adjudicator, none the less when I refer to the subsequent referral notice and, indeed, the adjudicator’s decision, they fortify me in my conclusion that what was intended to be referred was the claim for damages, and that is what the adjudicator decided.
[65] It follows, in my judgment, that since the arbitrator in his first arbitral award decided that the appellants were not in repudiatory breach of contract, and instead it was the respondent that was in repudiatory breach of contract, that is a final determination by the arbitrator that the respondent does not have a claim for damages for repudiatory breach of contract by the appellants. It follows, in my judgment, that as from the date of publication of the first arbitral award, the decision of the adjudicator was no longer binding. I appreciate, of course, that the respondent may still establish its entitlement to a final account claim in its favour when the substantive arbitral award is released; however that is an entirely separate matter and an entirely separate claim.
[66] It also follows, in my judgment, that from 31 July 2009 the adjudicator’s decision was no longer binding on the appellants. It would appear to follow that the appellants would be entitled to apply to have the enforcement judgment set aside, although I did not hear argument on that point. None the less, it seems to me that it could not possibly be right for the statutory demands not to be set aside in those circumstances. Although Mr Bradley submitted that this was not a point taken by the appellants on this appeal, and although it is true that it is not raised in terms in the appeal notice, it is quite apparent from the skeleton argument subsequently served in support of the appeal, together with the application for permission to rely on this evidence, that the appellants were seeking to rely on the first interim award on that basis, as they said in para 19 of the skeleton, that this has overturned the adjudicator’s decision.
[67] For all of those reasons, therefore, I would allow the appeal and set aside the statutory demands.
Appeal allowed.
