Pay Back Time for the Poor “Insolvent” Contractor


The decision of Judge Coulson in the Technology and Construction Court (TCC) of Alexander & Law Ltd -v- Coveside [2013] EWHC 3949 is an illustration of the principle that the awards in construction Adjudications are no more than interim and it is always open for the losing party in an Adjudication to challenge the Adjudicator’s decision by going to back court to say that the Adjudicator got it wrong and that his decision should not stand.

F or the poor Contractor on the verge of insolvency it will mean that they risk having a summary judgment ordered by the court, in enforcement of the Adjudicator’s decision, stayed for the reason that they will not be able to pay the money back if the Adjudicator’s decision is later found to have been wrong.

Even though the TCC decided in this case that Alexander Law (AL) had brought and justifiably won Adjudication claims that would normally have been enforced by the TCC, because of the parlous state of AL’s finances and the large debts owed to other creditors by them, the TCC stayed the summary judgment enforcement hearing. In doing so the TCC refused to order that Coveside pay to AL the amount awarded by the Adjudicator to them. The reason why the TCC would not grant enforcement of the summary judgment of the amount awarded by the Adjudicator was that because of their poor financial situation AL would not able to pay back this sum to Coveside if the Adjudicator’s decision was later found to be wrong by another court.

The law has been settled for many years that if the Claimant seeking to enforce the Adjudicator’s decision is impecunious rather than insolvent the court will ask itself the question is the Claimant able to repay the judgment if the courts later decide that the Adjudicator’s decision was wrong? In considering this question the same Judge Coulson in the decision of Wimbledon Construction -v- Vago [2005] BLR 374 set out the following test:

1. Adjudicator’s decisions are intended to be enforced summarily and the Claimant who wins the Adjudication should not be kept out of his money.

2. However, if the impecunious Claimant will probably not be able repay the judgment sum awarded by the Adjudicator, if the Adjudicator is later found to have been wrong to make the judgment, this may lead the court to decide that these are special circumstances justifying the grant of a stay of the Claimant’s application of summary judgment to enforce the Adjudicator’s decision.

3. If it is admitted that the company is insolvent, even though not subject to insolvency proceedings, then the court will usually grant a stay of proceedings.

4. However, even if the Claimant’s financial position is such that it is probable that it would be unable to repay the judgment when it falls due, that would not usually justify the grant of a stay if:

• the Claimant’s financial position is the same or similar to its financial position as at the time that the contract giving rise to the dispute was entered into.

• the Claimant’s impecuniosity is due either wholly or in significant part to the Defendant’s failure to pay the sums which were awarded by the Adjudicator.

On the facts of the AL case Judge Coulson found that, even though AL had not yet been declared insolvent, he had a real doubt that if the stay was not granted Coveside would see any part of the money again because the high bank overdraft of AL would gobble up the sum ordered to be paid by the Adjudicator. This would leave Coveside empty handed if they were later proved right by a court in deciding that the Adjudicator’s decision was wrong. In this respect the Judge said if the bank chose simply to cut their losses and not extend any further overdraft facilities to AL once the judgment had been banked no creditor would recover anything.

The Judge decided that on the facts of the AL case Coveside was not a significant cause of AL’s financial position let alone the sole cause. The failure to pay the certified sum that led to the Adjudication claims had not caused AL’s parlous financial state because they had not traded at the time and the debts of the various creditors Winding Up petition were all created before Coveside’s failure to pay on the certificate that led to the Adjudications being brought. For this reason the Judge decided that Coveside neither caused nor significantly contributed to the fact that AL were not in a position to repay the judgment sum if the judgment were not stayed.

At a time when Contractors are more keenly than ever reliant on achieving the best possible cash flow they should be advised to get their house in order before pressing the Adjudication button. If they have an actual or threatened insolvency they may not be able to enforce an Adjudicator’s decision. Some may see this as frustrating the ability of Contractors to achieve a healthy cash flow when it is needed most. After many years of forcing Employers onto the back foot in Adjudications it is “pay-back time” for the poor “insolvent” Contractor facing acute cash flow problems.

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