UK: When Can A Party Seek A Stay Of An Adjudicator's Decision?

Last Updated: 29 November 2018
Article by Martin Ewen

In Grosvenor London Limited v Aygun Aluminium UK Limited [2018] EWHC 227 (TCC), the court extended the long-established grounds on which a party can seek a stay of execution of an adjudicator's decision.

Introduction

Grosvenor London Limited ("Grosvenor") made an application for summary judgment in respect of an adjudicator's decision which was made in its favour against Aygun Aluminium Limited ("Aygun"). The amount of the decision was £553,958.47 plus VAT. The application was resisted by Aygun on the basis of fraud. Aygun also brought its own application for a stay of execution, in the event that its opposition to the summary judgment application was unsuccessful.

The facts

Grosvenor and Aygun were parties to a contract entered into in May 2016 ("the Contract") for Grosvenor to perform certain cladding and other associated works for the installation of a facade at the Ocean Village hotel in Southampton.

The project fell into delay and Grosvenor referred a dispute to adjudication. The adjudicator awarded £553,958.47 plus VAT to Grosvenor, which was for outstanding labour costs.

The adjudication enforcement proceedings

In the adjudication enforcement proceedings, Aygun raised, as part of its defence, an allegation of fraud. It said that following some enquiries "it is now the Defendant's case that a substantial proportion of the Claimant's award is based on sums fraudulently invoiced to the Defendant". In essence, Aygun claimed that there was an "enormous discrepancy" between sums invoiced by Grosvenor and works actually done or labour actually provided. Aygun argued that at least £300,000 had been fraudulently invoiced. Aygun accepted that it had not raised this as a defence in the adjudication, arguing that the relevant information was not available to it at that time.

Despite the range of allegations and witness statements served by Aygun, Grosvenor had served no evidence at all. The Judge described this as "extraordinary".

The Judge considered the principles that apply on enforcement when fraud is alleged. If fraud is to be raised in an effort to avoid enforcement, it must be supported by clear and unambiguous evidence and argument. Further, a distinction has to be made between fraudulent acts that could have been raised as a defence in the adjudication and those which neither were nor could reasonably have been raised but which emerged afterwards.

The Judge recognised that a particular issue for Aygun was why it had not raised some of these issues in the adjudication. For example, the valuation evidence showing the large discrepancy could have been, and the Judge thought should have been, deployed in the adjudication.

Therefore the Judge allowed the application for summary judgment, before considering the matter of Aygun's application for a stay of execution in the event that Grosvenor succeeded in obtaining summary judgment.

The application for a stay

Aygun raised a number of factors in its application. In summary, they were as follows:

  1. The points it had raised in respect of what it said was fraud by Grosvenor.
  2. The financial viability (or lack of) of Grosvenor.
  3. If paid, the money would be dissipated before the hearing of Aygun's challenge to the substantive dispute dealt with in the adjudicator's decision.
  4. Statements made by Mr Popa, a director of Grosvenor, that if Grosvenor were to face a claim from Aygun he would "immediately wind up the company" and Aygun "would never get a penny out of him".
  5. The fact that other companies in which Mr Popa was a director had been liquidated.

The statutory company accounts of Grosvenor were also a material factor. The company accounts for Grosvenor showed significant discrepancies. The Judge described the explanation of the discrepancies (including those given by the accountant at the hearing) as "so obviously wrong, that had the matter not been so serious, it would have been verging on the comical".

Turning to the principles that apply to a stay of enforcement of a judgment given on an adjudicator's decision, the Judge noted that in Wimbledon Construction Company 2000 Limited v Derek Vago [2005] EWHC 1086 (TCC) [2005] BLR 374 the court set down the principles that apply. In that case, the application sought a stay on the basis that the claimant would be unable to repay the sum if the defendant were successful in an arbitration on the substantive issues. The application was refused and a stay was not granted. In that case the judge set out the principles that apply when considering a stay, which can be summarised as follows:

(a) Adjudication is designed to be a quick and inexpensive method of arriving at a temporary result in a construction dispute.

(b) In consequence, adjudicators' decisions are intended to be enforced summarily and the claimant (being the successful party in the adjudication) should not generally be kept out of its money.

(c) In an application to stay the execution of summary judgment arising out of an adjudicator's decision, the court must exercise its discretion with considerations (a) and (b) firmly in mind.

(d) The probable inability of the claimant to repay the judgment sum (awarded by the adjudicator and enforced by way of summary judgment) at the end of the substantive trial, or arbitration hearing, may constitute special circumstances rendering it appropriate to grant a stay.

(e) If the claimant is in insolvent liquidation, or there is no dispute on the evidence that the claimant is insolvent, then a stay of execution will usually be granted.

(f) Even if the evidence of the claimant's present financial position suggested that it is probable that it would be unable to repay the judgment sum when it fell due, that would not usually justify the grant of a stay if:

(i) the claimant's financial position is the same or similar to its financial position at the time that the relevant contract was made; or
(ii) The claimant's financial position is due, either wholly, or in significant part, to the defendant's failure to pay those sums which were awarded by the adjudicator.

The above principles have been applied over 40 times in the Technology and Construction Court and are the foundation for consideration of whether a stay of execution of an adjudicator's decision should be granted or not.

The Judge decided that there were "special circumstances" in this case which justified a stay of execution. The Judge categorised these as follows:

(i) Facts relating to the alleged fraudulent acts which should have been deployed before the adjudicator.

(ii) Facts relating to the behaviour in January 2018 of Grosvenor's employees, including threats and intimidation, in relation to the enforcement proceedings.

(iii) Facts relating to the unsatisfactory and contradictory accounts of Grosvenor.

These represented an extension to the points listed in the Wimbledon v Vagocase. However, as the Judge said, there was no question of fraud in that case and that case could not be expected to deal with such a situation. The Judge therefore added the further following principle:

"(g) If the evidence demonstrates that there is a real risk that any judgment would go unsatisfied by reason of the claimant organising its financial affairs with the purpose of dissipating or disposing of the adjudication sum so that it would not be available to be repaid, then this would also justify the grant of a stay."

Conclusions and implications

The Judge made it clear that this item was only likely to arise in a very small number of cases, and in exceptional factual circumstances. A high test was to be applied as to whether the evidence reached the standard necessary for this principle to apply. Further, it was not intended to reopen the whole issue of the basis upon which stays of execution will be ordered in adjudication enforcement cases. Here the evidence was that Grosvenor (or those who control it) "would specifically organise its financial affairs, other than in the ordinary course of business, to ensure that the adjudication sum paid to it would be dissipated or disposed of so that any future judgment against it would go unsatisfied".

Accordingly it was appropriate to stay the execution of the adjudication decision.

Note: Around the same time the case of Equitix ESI CHP (Wrexham) Limited v Bester Generacion UK Limited [2018] EWHC 177 (TCC) also addressed the grounds for a stay of execution of an adjudicator's decision.

In that case the court also considered the principles in Wimbledon v Vago. The Judge said that the "financial information made available by the claimant, and thus available to the court, is unsatisfactory", giving examples, before concluding: "I regret, therefore, that I am bound to conclude that the claimant has been much too economical with the information relating to its financial position. There may be a number of reasons for that, but the absence of the information requested and required by the Companies Act is another factor when the court is considering a stay of execution."

The Judge decided that although the claimant was entitled to summary judgment in the full amount ordered by the adjudicator, the defendant was obliged to pay only £4.5 million, and to bring a further £1 million into court. There was a stay of execution in respect of the remaining sum (around £4.5 million).


This article is taken from Fenwick Elliott's 2017/2018 Annual Review. To read further articles go to Fenwick Elliott Annual Review 2018/2019


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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