True Fix Construction Ltd v Apollo Property Services Group Ltd

This is an application for summary judgment for sums awarded in an adjudicator’s decision.

The background to this case is that there was a contract between the parties in relation to the provision of roofing work at Repton Park Primary School, Ashford, Kent (“the Contract”).

A quotation was submitted by the claimant (“TFC”) to the defendant (“Apollo”), dated 10 January 2011 (but in fact properly 10 January 2012). On 2 April 2012 Apollo placed a subcontract order which incorporated Apollo’s bespoke subcontract conditions, accepting TFC’s quotation. The contract, therefore, comprised the quotation and the order. The Contract included a payment mechanism.

The Contract comes within the Housing Grants Act, as amended by the Local Democracy Act 2009. Clause 17.4 of the subcontract conditions provides for adjudication.

During the course of the work, there was another subcontractor, (“Powerwall”) who was carrying out works at the site, some of which, it appears, were in turn subcontracted to TFC. Powerwall’s contract was terminated. Powerwall is now in Administration and I have seen documentation from the Joint Administrator, James Stephen of BDO LLP, which shows that there is little prospect of any recovery of sums which are owed by Powerwall. At the time of the Administration some £150,000 was owed, it is said, from Powerwall to TFC, and, as I have indicated, on the evidence before me, is unlikely to be paid.

On 28 May 2012 there was a meeting attended by TFC and Apollo, to discuss the way forward, in particular by using TFC to complete the works which were being carried out by Powerwall. The decision was taken by Apollo at that meeting that TFC should become “the alternative supply chain” to provide those works. It is clear from that document, which is relied upon in the witness statement of Mr Paul Learner, on behalf of Apollo, that TFC needed to have materials purchased because they had no funds to purchase them. It is also clear that there were cashflow difficulties for TFC because there was a question of more frequent payments to TFC.

In due course, an application for payment was made by TFC in December 2012 (application No 6). It was due for payment in January 2013, but was not paid.

The matter then went to adjudication, and that led to an adjudicator’s decision of 8 March 2013, in which the adjudicator awarded TFC the sum of £125,124.41 plus VAT and interest in respect of that claim for payment.

I understand that subsequently another adjudication has been started. It is said that on or about 10 June 2013 there will be an adjudicator’s decision which will be a determination of what sum is finally due to TFC from Apollo.

The sum which the adjudicator awarded on 8 March 2013 was not paid, and that led to the commencement of these proceedings on 24 April 2013. They were supported by evidence, including the witness statement of Mr Adam Wingrove, and in response to the witness statement from Mr Learner Mr Wingrove has also provided a second witness statement.

The issue before the court is now considerably narrower than it might otherwise have been. The issue is whether or not there should be a stay of proceeding of the enforcement of the adjudicator’s decision, it now being accepted that there cannot be a challenge to the adjudicator’s decision itself which ordered payment of some £125,000.

When applications for a stay are made, the principles to be applied are those set out in the summary of the position on such applications in paragraph 26 of the decision of His Honour Judge Coulson QC (as he then was) in Wimbledon Construction Company v Vago [2005] BLR 374. That judgment emphasises in the first two paragraphs under paragraph 26 the principle that adjudication is designed to be a quick and inexpensive method of arriving at a temporary result.

Adjudication decisions are intended to be enforced summarily and a claimant should not generally be kept out of the money. The question of whether to stay execution of summary judgment is a matter for the discretion of the court, and in coming to that decision the court has to consider, first of all, the probable inability of a claimant to be able to repay the judgment sum if ordered to do so at the end of a substantive trial or arbitration hearing leading to a final determination. That can amount to special circumstances rendering it appropriate to grant a stay.

Clearly if a party is in insolvent liquidation, then a stay of execution will normally be granted and may be granted where the claimant would probably be unable to repay the judgment sum. But where there is a probable inability of the claimant to repay the judgment, if the claimant’s financial position is the same or similar to the financial position at the time when the relevant contract was made, or the claimant’s financial position is due, either wholly or in part, to the defendant’s failure to pay the sums which were awarded in the adjudication, then, in those circumstances, the court is unlikely to grant a stay. Those principles, summarised in Wimbledon v Vago are not in issue. What is in issue in this case essentially is the question of the financial solvency of TFC.

Within the evidence, Mr Learner has exhibited two summary credit reports. It is acknowledged by the court that, very often, a party finds it difficult to put before the court up-to-date information on the financial position of another party because of the unavailability of that information. Such reports are helpful, but, as has been indicated in other cases, they must be treated with some caution.

In this case I have one from Dunn & Bradstreet dated 25 February 2013 and one from Credit Assist dated 3 May 2013. They paint a poor view of the financial ability of TFC. However, what has to be borne in mind is that many of the statistics are related not to the construction sector, but to overall trading businesses within the UK. That leads to a modification when one looks at the industry sector, and it is perhaps a sad reflection of the current state of the construction industry that, although it is said that in this case that there is a high risk of business failure and that TFC has low financial strength, if one looks at this in comparison to other companies in the construction sector, there are 77 per cent of companies which have a lower financial strength. In my judgment, that is a factor which has to be taken into account when one is assessing the financial ability of construction companies based on this type of credit report.

In terms of the publically available evidence of TFC’s position which Mr Learner was able to put before the court, there is a balance sheet and accounts as at 31 March 2012. In the usual way, they summarised the position in 2011 and 2012. That shows that in 2011 the total assets less current liabilities showed a figure of £9,603, compared to the figure of £44,536 for 2012.

In response to that evidence, there are now accounts which have been provided attached to the second witness statement of Mr Wingrove. That second witness statement identifies current liabilities in terms of suppliers and labour of some £68,000. It also shows that there are outstanding debtors, including Apollo’s final account which is said (excluding retention and VAT) to be about £148,000 and other main contractors at £32,500, giving a total of about £180,000.

There was a question as to how, within the various accounting documents, both that figure of £180,000 and the figure of £150,000 in the administration of Powerwall are treated. I have two profit and loss reports for the company, the first one in February 2012 and the second one in March 2013. The one in February 2012 shows a year to date turnover based on invoices submitted of about £952,000. Once the various direct costs of labour and materials and various indirect costs are deducted, that gives an overall net profit (as it is expressed) of £71,000, which is roughly 7.5 per cent. For the period to March 2013, there is £1.75 million as income for the year to date and when direct costs and indirect costs are deducted, this leads to a net profit of £101,290.52. There is no evidence, although on instructions I am told that the £1.75 million includes neither the £150,000, which would have been income from Powerwall, nor, as I understand it, the £148,000 which is said to be owed by Apollo to TFC.

On behalf of Apollo, Mr Webb submits that, when one looks at these figures, first of all it is clear that the trade debtors of £68,000 would have to be paid off by using a substantial part of the sum of £125,000 awarded in the adjudicator’s decision. He says that, looking at it in that simple way, there would not therefore be the ability for TFC to repay the judgment sum if it was paid for them. He looks at the accounts of TFC and notes that there is only a small figure for the net assets after liabilities which shows that there would not be sufficient in those sums for there to be repayment of a judgment sum.

On the basis of the two profit and loss reports, Mr Webb submits that there is uncertainty on the evidence before the court as to whether the income figure of £1.75 million included the £150,000 or the £148,000. If it included both of those, then clearly in terms of the Powerwall position he would submit that the net profit is substantially negative, again supporting his submissions that this is a case where TFC would probably be unable to repay the figure of £125,000 if it were paid to them. He submits that, in this case, looking at the position at the date of the contract, this would show that TFC is less solvent now than it was in February 2012 and he submits that the main cause of any financial difficulties is the fact of the insolvency of Powerwall, rather than any inherent problem arising from the position between TFC and Apollo.

On that basis, he submits that this is a case where there should be the grant of a stay based on the principles set out in Wimbledon Construction v Vago. He says that there would be a probable inability of TFC to repay the judgment sum, and the countervailing considerations are not there, because the financial position now is worse than it was at the date of contracting, and also the financial position has not been made worse by the action of Apollo but by the action of Powerwall. In those circumstances, he submits, there should be a stay in the exercise of the discretion by the court.

On behalf of TFC, it is submitted by Mr Hirst that this is a case where, looking at the bottom line figures of the profit and loss reports of February 2012 and March 2013, the net profit has increased from £71,000 to £101,000. He submits, on the basis of instructions, that as the figure of £1.75 million does not include the £150,000 due from Powerwall or the £148,000 due from Apollo, the financial position of TFC is sound.

He submits that, in any event, in this case, the position, looking at the financial position in February 2012 compared to the financial position in March 2013, cannot be said to be worse. He also refers to the fact that in May 2012, as I have referred to, there was further work given to TFC when Powerwall became insolvent, and in those circumstances one should look at the financial position at that stage as well as the financial position earlier. He submits that it is clear from that meeting in May 2012 that Apollo were well aware of TFC’s difficulty in paying for materials and in needing money for cashflow.

In summary he therefore submits that the evidence does not show that TFC would be unable to repay the money, but in any event the financial position is no worse than it was, and the sums owed by Apollo to TFC are substantially ones which should affect the position. Therefore, he submits, this is not a case for a stay.

Turning to the issues raised, first, I do not consider that in this case I am assisted by the Dunn & Bradstreet or Credit Assist reports, which have been produced on limited information and indicate, if anything, the vulnerability of the construction industry at this particular time. Secondly, looking at the profit and loss reports of February 2012 and March 2013, however one reads them, whether or not they are taken to include sums due from Powerwall and the sums claimed from Apollo, those accounts reflect increased turnover from 2012 to 2013. It is clear that the margins, as in other parts of the industry, have been reduced but there is still substantial turnover. Looking at those figures of turnover, then a figure of current debtors of £68,000 is not a large figure compared to the overall turnover to March 2013 of £1.75m. Equally they show an overall profit of over £101,000.

Therefore, looking at the matter in the round, my view is that this is not a case where it can be said with sufficient probability that TFC would be unable to repay £125,000 if they had to do so as a result of a final judgment in relation to the final account. The position is that whilst it might not be easy for the money to be repaid, on the figures, there is a real likelihood that they would be able to repay, given their current financial position.

Even if I had been less certain about that, this is a case where it seems to me that the financial position of TFC at the time of entering into the additional commitments in February 2012 cannot be said to be substantially better than the current financial position and indeed appears to have been worse. Although the test is sometimes said to require comparison with the financial position at the date the contract was entered into, this is an area where the court must decide whether to exercise a discretion. This is a case where in May 2012 TFC had suffered because of the Administration of Powerwall and where Apollo had decided to give TFC substantial additional work, originally to be carried out by Powerwall, at the meeting of 28 May 2012. This further work was given to TFC by Apollo, knowing of TFC’s then financial difficulties as a result of the insolvency of Powerwall. This is also a factor to be taken into account in this case.

In any case, if the sum of £148,000 said to be due from Apollo or the £125,000 awarded by the adjudicator is to be added to the bottom line on the March 2013 accounts, there would be increased profit. Even with the £101,000 which is there, there is a substantial amount.

In those circumstances, the court has to consider the overall position. In my judgment, this is a case which, like others currently coming before the court, it is imperative that cashflow is maintained as a priority in the construction industry. I quite understand and sympathise with the position of Apollo, who say that there is an adjudication coming in the near future which may, on an interim basis, award sums in favour of Apollo, or reduce the sum which would be due to TFC. The court, on this sort of application, cannot speculate on the outcome of that adjudication.

The essence of adjudication is to provide cashflow, and the fact that there may, on one party’s contention, be an adjudicator’s decision in the near future which may require payment by the other party, cannot affect the approach of the court to an earlier adjudication decision which cannot at this stage be challenged and where the application for summary judgment to enforce that decision is conceded.

In this case that is well illustrated by the fact that the sum which is now in issue should have been paid on or about 17 January 2013. The adjudication process has led to the position where it has now been accepted that that sum should have been paid at that date. Therefore, it is difficult to say that, even if something is awarded in favour of Apollo by further adjudication on 10 June 2013 or at some later date, there would have been a period of some 5 months when the cashflow was affected by the failure to pay that sum. So whilst I have sympathy for the position of Apollo, adjudicator’s decisions have to be enforced, and this is not a case where, looking at the principles set out in Wimbledon v Vago, the court should, in its discretion, grant a stay of enforcement.

In those circumstances, I grant summary judgment in the sum of the adjudicator’s decision.