Charles Edwin Edwards MSt(Cantab) MSc(Lond) FCInstCES Barrister
Charles Edwards, Construction Barrister and Head of Chambers reviews the Technology and Construction Court case of WRB (NI) Ireland v. Henry Construction Projects Limited [2023] EWHC 278 (TCC), which provides highly useful guidance on the risks of contracting dormant companies. The Technology and Construction Court (“TCC”) in the adjudication enforcement proceedings, declined granting the contractor a stay of execution of enforcement in order for it to establish its cross-claim against the sub-contractor which was a dormant company, or to allow the contractor to mitigate its risk of it not recovering damages from the sub-contractor which was a dormant company.
WRB (NI) Limited (“WRB”), a sub-contractor and Claimant seeks to enforce an adjudicator’s decision in its favour against Henry Construction Projects Limited, the contractor and Defendant in the adjudication enforcement proceedings. The contractor by a sub-contract engaged the sub-contractor to design, “supply, install, test and commission the mechanical, electrical and public health systems for the development for a total sum of £2,180,000 plus VAT.” The sub-contractor submitted it was a dormant company and claimed it was not party to the sub-contract by arguing that the sub-contract was with WRB Energy Limited. Conversely, the Contractor claimed that it contracted with the claimant, WRB (NI) Limited as sub-contractor. This issue was resolved by an earlier adjudication. The key issue in this case was that the contractor was seeks a stay of execution of any judgment.
On 30 March 2022, WRB issued a notice of adjudication regarding the value of its interim application for payment number 15. The total of £1,757,483.36 had been paid by the contractor but WRB claimed that it was entitled to further payment of £815,618.37. By its response, the contractor claimed that it had overpaid WRB and sought a repayment of £563,395.65. By a corrected decision dated 18 May 2022, the adjudicator concluded that the true balance owed was £120,655.35 plus interest of £96.79. Further the contractor should pay any VAT payable upon the capital sum.
In accordance with the adjudicator’s decision, WRB who were successful in the adjudication sought payment from the contractor, however they did not seek any VAT on the adjudicator’s valuation. The contractor did not make payment. WRB applied for summary judgment. The Technology and Construction Court granted summary judgment £140,000. However, the contractor by a cross application applied for a stay of execution. Due to WRB being a dormant company, the contractor contended that if their counterclaim were to be successful, it would be highly likely that monies owed to them, would not be paid. The contractor asserted that it had cross-claims totalling £754,495.72 for liquidated damages and costs incurred in supplementing WRB’s labour, plant and materials. The contractor stated it anticipated issuing a notice of adjudication the following week. The contractor stressed that it only required a short stay while it establishes its alleged entitlement to its larger cross-claim. The contractor argued that “WRB’s parlous financial standing means that it is highly probable that any monies paid now will not be repaid in the event that” the contractor succeeds in its own claim.
WRB objected to even a short stay on the basis it would undermine the statutory purpose of adjudication. Further, WRB has always been a dormant company and if the contractor chose to place the subcontract with a dormant company then it accepts the risks inherent in doing business with such a company.
WRB argued that a stay should be refused upon a proper application of the principles summarised by His Honour Judge Coulson QC (as he then was), in Wimbledon Construction Company 2000 Ltd v. Vago [2005 EWHC 1086 (TCC), (2005) 101 Con LR 99. The point was made that it should not be necessary, however, if the court would otherwise be minded to grant a stay, WRB confirms that WRB Energy Limited offers to guarantee the repayment of any part of the judgment sum in the event that contractor obtains a valid order, decision or judgment in its favour for payment within three months of the contractor’s own payment. Further, WRB offers to extend such period to six months should the court consider three months to be too short.
The Technology and Construction Court (TCC) refused to order a stay of execution and in particular, at paragraph 21 of this judgment, the TCC highlighted the special circumstances established and helpfully summarised by Judge Coulson QC (as he then was) in Wimbledon Construction Company 2000 Ltd v. Vago [2005 EWHC 1086 (TCC) as set out below, which the court will consider in such a matter.
The Technology and Construction Court considered the law and stated as follows:
“…
- Rule 83.7(4)(a) of the Civil Procedure Rules 1998 provides that the court may stay the execution of a judgment or order if there are “special circumstances which render it inexpedient to enforce the judgment or order.” In Wimbledon Construction Company 2000 Ltd v. Vago, Judge Coulson QC helpfully summarised the applicable principles at [26]:
“(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 (see AWG Construction Services v. Rockingham Motor Speedway [2004] EWHC 888 (TCC)).
(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 (see Herschell Engineering Ltd v. Breen Property Ltd (unreported) 28 July 2000, TCC).
(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 (see Bouygues (UK) Ltd v. Dahl-Jensen (UK) Ltd (2000) 73 Con LR 135, [2001] 1 All ER (Comm) 1041, CA and Rainford House Ltd v. Cadogan Ltd [2001] BLR 416).
(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 (see Herschell); 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 (see Absolute Rentals v. Glencor Enterprises Ltd [2000] C.I.L.L. 1637).”
- In LXB RP (Crown Road) Ltd v. Squibb Group Ltd [2016] EWHC 2669 (TCC), Stuart Smith J, as he then was, cited Wimbledon and added, at [11]:
“Without derogating from that statement of principle a decision to enforce or not is an exercise of the court’s discretion, which must balance the well-known interest in enforcing valid adjudication decisions – for reasons that have been repeated frequently elsewhere and do not need further repetition now – against the perceived or actual risk of future injustice if the party subsequently becomes unable to reciprocate in the payment of what it owes under the same contract.”
- In Herschel Engineering Ltd v. Breen Property Ltd the defendant sought a stay of execution where the claimant company had only been formed three months before the contract was entered into. In refusing a stay, His Honour Judge Lloyd QC considered this highly relevant. He observed:
“In my view, on an application for a stay where a party has [entered] into a contract with a company whose financial status is or may be uncertain and finds itself liable to pay money to that company under an adjudicator’s decision, the question may properly be posed: is this not an inevitable consequence of the commercial activities of the applicant that it finds itself in the position it is in? It has, as it were, contracted for the result. That is not normally a ground for avoiding the consequences of a debt created by the contractual mechanism … It is very easy (and prudent and relatively inexpensive) to carry out a search or to obtain credit references against a company whose financial status and standing is unknown. Not to do so inevitably places a person at a significant disadvantage. It has only itself to blame if the company selected by it proves not to have been substantial (as opposed to a material deterioration in its finances since the date of contract).”
- Likewise, in Granada Architectural Glazing Ltd v. PGB P&C Ltd [2019] EWHC 3296 (TCC), Nicholas Vineall QC, sitting as a Deputy Judge, refused a stay in a case where the claimant was balance-sheet insolvent at the date of the contract and at the time of enforcement but, based on support by way of inter-company loans, had always paid its debts as they fell due. While the primary ground for refusing a stay was that the judge rejected the argument that the company would probably be unable to pay, the deputy judge added that he would in any event have rejected the application for a stay because the claimant’s position had not changed. He observed pithily, at [43], that:
“RGB chose to contract with Granada. In the absence of a material change in the financial position of Granada, it seems to me that it would be unfair and contrary to the spirit of the adjudication regime to allow RGB to escape its liability to meet an adjudication award on the basis of the essentially unchanged financial position of Granada. Accordingly, I decline to order a straightforward and unconditional stay of execution.”
- Of particular note is the case of Westshield Civil Engineering Limited v. Buckingham Group Contracting Limited [2013] EWHC 1825 (TCC), 150 ConLR 225, in which Akenhead J refused a stay. There are a number of parallels with the instant case in that the claimant had been a dormant company both at the time of the sub-contract and enforcement proceedings, and had itself contended that the true contracting party was a different and solvent company. The parties were, however, bound by an earlier adjudication decision that the claimant was the true sub-contractor. In Westshield, the associated company that claimed to be the true sub-contractor offered to guarantee the repayment of the judgment sum in the event that it was later determined that it was the true contracting party.
The further court acknowledged that this is a case where it is probable that, should the court refuse a stay and the contractor later establish its own cross-claim, WRB would be unable to repay the judgment sum. While such risk could be addressed, or at least mitigated, by the guarantee offered by WRB Energy Limited, the court was not satisfied that the contractor has established that it would be inexpedient to enforce the adjudicator’s decision. The court in concluding made the following three points in summary:
- Firstly, the contractor chose to place the sub-contract with a newly formed dormant company. The risk that it now complains of is, to quote Judge Lloyd’s observations in Herschell, the “inevitable consequence” of having placed this sub-contract with a dormant company. It is “the result for which it contracted.” As the deputy judge observed in Granada, it would be unfair and contrary to the spirit of the adjudication regime to allow Henry Construction now to escape its liability to meet an adjudication award on the basis of WRB’s essentially unchanged financial position. [Emphasis added]
- Secondly, it was the contractor that resisted the argument that the true sub-contractor was WRB Energy Limited. It is not clear whether it considered there to be some forensic advantage in taking that line but it has essentially made its own bed. [Emphasis added]
- Thirdly, this judgment became regrettably delayed behind a judgment in another very substantial TCC case. By the time it is handed down, the contractor will have had ample opportunity to establish its alleged entitlement upon its cross-claims. [Emphasis added]
In refusing to grant a stay of execution, the court further concluded that the guarantee offered from another WRB group company was unnecessary. Altogether, the contractor’s application for a stay of execution was refused.
For further information with regard to the resolution of any construction contract dispute and payment related issues as set out above, please do not hesitate to contact, Charles Edwards Construction Barrister and Head of Chambers at Gray’s Inn Construction Chambers on: cedwards@graysinnconstructionchambers.co.uk to see how chambers can assist you or your organisation.
The above is for general information only and to encourage discussion and does not constitute legal advice. The author does not assume any responsibility for the accuracy of any statements made and appropriate legal advice should be taken in each instance and relied upon before taking or omitting to take any action in respect of any specific matter.
Charles Edwin Edwards MSt(Cantab) MSc(Lond) FCInstCES Barrister
Gray’s Inn Construction Chambers
60 Gray’s Inn Road
London WC1X 8AQ
Tel: +44(0)203 286 0008
7th December 2023
