UK: Permission To Continue Proceedings During A Statutory Moratorium – South Coast Construction Ltd V Iverson Road Ltd [2017] EWHC 61

Co-authored by: Jade Fawcett

The recent case of South Coast Construction provides a helpful insight into the court's treatment of applications for permission to continue proceedings during the administration moratorium.

Mr Justice Coulson heard the matter whilst acknowledging that, by the time judgment was handed down, the interim moratorium (which had arisen following the filing of a notice of intention to appoint an administrator ("NOI")) would have expired. He did so on the basis that (i) his decision would be desirable, given its wide ramifications for other cases and (ii) it was relevant as to costs.

South Coast Construction, as claimant, made two applications. The first application was for summary judgment to enforce the decision of the construction adjudicator in other proceedings, and the second application was for permission to proceed with a related enforcement hearing despite the 10 day interim moratorium.

Mr Justice Coulson's judgment outlined the factors relevant to the court when considering whether to grant permission to continue proceedings during a moratorium in the context of administration.

  1. Balancing exercise

Mr Justice Coulson applied In Re Atlantic Computer Systems PLC [1992] CH 505, which requires the balancing of the parties' interests. This requires the person seeking permission to continue proceedings to make out their case, as the prohibition is intended to assist the achievement of one or more of the purposes of administration. The court has to balance the legitimate interests of (i) the claimant and (ii) the company's other creditors. It was noted by the court that in such an exercise, great weight is normally given to the proprietary interests of the claimant. It is normally sufficient to make a successful case if it can be demonstrated that not granting permission would cause significant loss to the claimant, unless doing so would cause a greater loss to others. However, Mr Justice Coulson also flagged that, following AES Barry Limited v TXU Europe Energy Trading [2004] EWHC 1757 (Ch) permission would be granted to a creditor seeking a monetary claim, in exceptional cases.

In South Coast Construction, Mr Justice Coulson permitted the claimant to continue with their enforcement action, as there was no evidence that the purpose of the moratorium would be jeopardised by such enforcement. In fact, Mr Justice Coulson concluded that any administrators appointed would be assisted by the determination in question, as it would provide an answer to the only issue in dispute between the claimant and defendant. The granting of permission would not enhance the claimant's position as a creditor and therefore the permission should be granted.

  1. State of proceedings

Further, Mr Justice Coulson highlighted that a relevant factor in the court's discretion is the state of the proceedings at the time of any application being made. As might be expected, the nearer to the conclusion of the proceedings, the greater weight is attached (Ronelp Marine Limited v STX Offshore and Shipbuilding Co Limited [2016] EWHC 2228 (Ch)).

  1. Appropriate and just

Another key factor for the court to consider is whether it is appropriate and just for the court to hear the application. In this case, as both parties had incurred costs in arguing the jurisdiction of the construction adjudicator to make his decision, there would have been no benefit to anyone if the court refused to answer the question presented to it.

  1. Fairness and conduct

The conduct of both parties is also relevant in determining whether to grant permission to continue proceedings. In particular, Mr Justice Coulson referred to Re Cornercare Limited [2010] EWHC 893 (Ch) whereby it was noted that the filing of repeated NOIs could amount in certain instances to an abuse of process.

In this case, Mr Justice Coulson held that it would be inequitable not to give judgment as the claimant had acted properly throughout, whereas it was held that the defendant's conduct should not be rewarded by the court. The defendant's conduct included filing serial NOIs without evidence about the company's underlying financial position and without informing the claimant, and engaging in the court proceedings regarding enforcement without notifying the claimant or the court as to the fact that moratorium had arisen. Mr Justice Coulson referred to the defendant having played a "deliberate double game". Therefore it was fair, given the conduct of the parties, that the court should grant permission to continue proceedings.

  1. Nature of adjudication

In this case, Mr Justice Coulson also held that there was a separate reason aside from the above to grant permission; being the nature of the adjudication itself. It was held that the proceedings before the construction adjudicator were distinguished from other types of commercial proceedings and monetary claims. In this case, statute and the amended standard form contract used by the parties had made the adjudicator's decision binding (prior to the filing of the NOI) and all that was left to do at the time of this hearing was to enforce the judgment.

Conclusion

Although in this case the question of whether the proceedings should have been permitted to continue was technical (as the statutory moratorium had expired by the time of the judgment), Mr Justice Coulson provided useful guidance about the factors the court will consider when deciding whether to grant permission for proceedings to continue during a statutory moratorium.

Key factors the court will consider when exercising its discretion include: balancing the legitimate interests of the claimant with that of the other creditors; the nature and state of the proceedings for which permission to continue is sought; whether it is appropriate and just to do so; the conduct of the parties and its impact upon the fairness of the decision.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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