South Coast Construction Ltd v Iverson Road Ltd

INTRODUCTION

The claimant has two applications before the court. The first in time is a relatively standard application pursuant to CPR Part 24 for summary judgment to enforce the decision of an adjudicator. The total sum claimed is £868,728.47, together with interest, fees and costs. The second application has been triggered by the belated discovery that the defendant has issued no fewer than three Notices of Intention to Appoint an Administrator (“NOI”), with the third notice giving rise to a 10 day moratorium which expired only at the close of business on 18 January, the day fixed for the enforcement hearing. That application, pursuant to Rule 43(6)(b) of Schedule B1 of the Insolvency Act 1986, is for permission to proceed with the enforcement hearing.

It obviously makes sense to deal with that second application first because, if I decided it against the claimant, that would be the end of the matter. Accordingly, having set out the background in Section 2, I address the law relating to the moratorium in Section 3 and set out my analysis and conclusions in Section 4. On this application, I should add that, in order to avoid any technical difficulty created by the expiry of the moratorium at the end of the very day listed for the hearing, I am giving this Judgment on the following day, 19 January, having allowed both parties to make brief submissions as to the up-to-date position following the expiry of the 10 day period. As I note below, although the position has changed overnight, there are a number of reasons why I still need to address the application for permission to continue with the proceedings.

Thereafter, I deal with the enforcement application, dealing with the applicable principles in Section 5, and setting out my analysis of the application in Section 6 below. I am very grateful to both counsel for the clarity of their submissions.

BACKGROUND

Pursuant to a contract made in about September 2013 and incorporating the JCT Intermediate Form, the defendant engaged the claimant to carry out significant building works at a site at 163, Iverson Road, London NW6. The contract administrator worked for a subsidiary company of the defendant: unsurprisingly perhaps, the adjudicator found that he lacked the necessary or appropriate impartiality properly to fulfil that important function.

Throughout the currency of the works, the adjudicator found that there were problems with the supply of design information to the claimant. Apparently, this did not cause immediate difficulty because the defendant paid some prolongation costs, and did not deduct liquidated damages. However, the various difficulties reached such a pitch that, in June 2016, having completed phases 1 and 2, the claimant suspended work for non-payment of sums due.

Thereafter, on 1 July 2016, the defendant issued an instruction purporting to omit the remainder of the works, a non-completion certificate, and a letter confirming their intention to deduct liquidated damages. Again unsurprisingly, the adjudicator was to find that the instruction to omit the remainder of the works was a repudiatory breach of contract.

Also on 1 July, the defendant issued a Payless Notice which purported to deduct from sums otherwise due to the claimant some £844,330.60 by way of liquidated damages. The Notice also valued the work already carried out by the claimant at a figure that was considerably lower than that which the claimant had already been paid. In response, on 12 July, the claimant issued an application for payment totalling £1,003,479.21. This was based on an overall value of the works that was some £2.5 million higher than the sum calculated by the defendant. It subsequently submitted a final account claim in similar – but not precisely the same – figures which identified a net sum due to the claimant of £996,418.01. The defendant did not pay any part of this amount.

Accordingly, on 5 September 2016, the claimant issued a notice of adjudication. The details of the dispute being referred to the adjudicator were described in these terms:

“The dispute referred to adjudication is the additional amount of monies South Coast Construction Limited (“SCC”) is entitled to be paid by Iverson Road Ltd over and above monies received to date pursuant to a JCT Intermediate Building Contract with Contractor’s Design between Iverson Road Limited and SCC for new build construction of 33 apartments and 3 houses at Iverson Road, London, NW6 2RB and the rights and obligations associated therewith. SCC also seek payment of interest for late payment.”

The sum sought in the notice of adjudication was the £996,418.01 referred to above, together with an additional payment of £139,433.29, being a claim for loss of profit on the works which had been wrongfully omitted.

Following the usual exchange of voluminous responses and rejoinders in the adjudication, the adjudicator provided his decision on 21 November 2016. The decision runs to 240 paragraphs. In essence, the adjudicator decided that:

Although, pursuant to the terms of the contract, the sums found due by the adjudicator should have been paid forthwith, those sums were not and have still not been paid by the defendant. The claimant therefore commenced these proceedings and sought summary judgment to enforce the adjudicator’s decision. I gave directions for the service of all relevant evidence, dates for bundles and skeleton arguments, and fixed the hearing for 18 January 2017. To start with, the defendant complied with those directions and provided a witness statement from Mr Simpson, the defendant’s solicitor, resisting enforcement on the ground that, in deciding the extension of time claim, the adjudicator exceeded his jurisdiction. That was the issue which the claimant and the court thought was the matter to be decided at the hearing on 18 January.

However, after close of business on 16 January, when the defendant was in breach of the order because it had not provided a skeleton argument or agreed a completed bundle for the hearing, the defendant’s solicitor sent a peremptory letter to the court, enclosing an NOI dated 4 January 2017. The letter noted that the moratorium under the Insolvency Rules ran for 10 clear business days and therefore did not expire until the end of 18 January. The letter stated that the hearing date “must be vacated and the action discontinued”.

It has since been disclosed that the NOI of 4 January was in fact the third such NOI served by the defendant and that there were two previous notices dated 29 November and 13 December 2016. For reasons which have not been explained, neither of those first two notices were drawn to the attention of the claimant or the court. No administrator was appointed under either of these two NOIs. The third NOI was not disclosed until after close of business on 16 January, despite the fact that the defendant’s solicitor was aware of it on 5 January 2017. As I made plain to Mr Winser in argument, I take a dim view of these events.

The position today (19 January) is that, at a meeting early this morning, the directors of the defendant resolved to put the company into liquidation. A liquidator has been appointed. Mr Winser told me expressly that no stay of these proceedings was sought, by the liquidator. This means that the moratorium has come to an end. On one view, therefore, it is unnecessary for me to deal with the claimant’s application for permission to continue the proceedings. However, it is plainly desirable that I do so because:

THE APPLICATION FOR PERMISSION TO CONTINUE: THE LAW

The relevant parts of Schedule B1 of the Insolvency Act 1986 provide as follows:

“43.

Moratorium on other legal process

(1)

This paragraph applies to a company in administration.

(2)

No step may be taken to enforce security over the company’s property except—

(a)

with the consent of the administrator, or

(b)

with the permission of the court.

(3)

No step may be taken to repossess goods in the company’s possession under a hire-purchase agreement except—

(a)

with the consent of the administrator, or

(b)

with the permission of the court.

(4)

A landlord may not exercise a right of forfeiture by peaceable re-entry in relation to premises let to the company except—

(a)

with the consent of the administrator, or

(b)

with the permission of the court.

(5)

In Scotland, a landlord may not exercise a right of irritancy in relation to premises let to the company except—

(a)

with the consent of the administrator, or

(b)

with the permission of the court.

(6)

No legal process (including legal proceedings, execution, distress and diligence) may be instituted or continued against the company or property of the company except—

(a)

with the consent of the administrator, or

(b)

with the permission of the court…”

44.

Interim moratorium

(1)

This paragraph applies where an administration application in respect of a company has been made and—

(a)

the application has not yet been granted or dismissed, or

(b)

the application has been granted but the administration order has not yet taken effect.

(2)

This paragraph also applies from the time when a copy of notice of intention to appoint an administrator under paragraph 14 is filed with the court until—

(a)

the appointment of the administrator takes effect, or

(b)

the period of five business days beginning with the date of filing expires without an administrator having been appointed.

(3)

Sub-paragraph (2) has effect in relation to a notice of intention to appoint only if it is in the prescribed form.

(4)

This paragraph also applies from the time when a copy of notice of intention to appoint an administrator is filed with the court under paragraph 27(1) until—

(a)

the appointment of the administrator takes effect, or

(b)

the period specified in paragraph 28(2) expires without an administrator having been appointed.

(5)

The provisions of paragraphs 42 and 43 shall apply (ignoring any reference to the consent of the administrator)...”

The principles as to how and when the court should exercise its discretion to grant permission to start or continue proceedings in are dealt with in a number of authorities. They can perhaps be grouped together under three sub-headings:

Although a claim about proprietary interests, the parties agreed that the starting point was In Re Atlantic Computer Systems PLC [1992] CH 505. There Nicholls LJ said:

“It is to be hoped, in the interests of all concerned, that applications to the court will become the exception rather than the rule. But we recognise that for this to be so, authorised insolvency practitioners and their legal advisers need more guidance than is available at present on what, in general, is the approach of the court on leave applications. We feel bound, therefore, to make some general observations regarding cases where leave is sought to exercise existing proprietary rights, including security rights, against a company in administration.

(1)

It is in every case for the person who seeks leave to make out a case for him to be given leave.

(2)

The prohibition in section 11(3)(c) and (d) is intended to assist the company, under the management of the administrator, to achieve the purpose for which the administration order was made…

(3)

In other cases when a lessor seeks possession the court has to carry out a balancing exercise, balancing the legitimate interests of the lessor and the legitimate interests of the other creditors of the company: see per Peter Gibson J. in Royal Trust Bank v. Buchler [1989] B.C.L.C. 130, 135…

(4)

In carrying out the balancing exercise great importance, or weight, is normally to be given to the proprietary interests of the lessor…

(5)

Thus it will normally be a sufficient ground for the grant of leave if significant loss would be caused to the lessor by a refusal. For this purpose loss comprises any kind of financial loss, direct or indirect, including loss by reason of delay, and may extend to loss which is not financial. But if substantially greater loss would be caused to others by the grant of leave, or loss which is out of all proportion to the benefit which leave would confer on the lessor, that may outweigh the loss to the lessor caused by a refusal…”

In AES Barry Limited v TXU Europe Energy Trading [2004] EWHC 1757 (Ch) Patten J (as he then was), was dealing with a monetary claim. He said at paragraph 24:

“It seems to me that it will only be in exceptional cases, and I do not rule out that there may be such cases, but it will be in exceptional cases that the court gives a creditor, whose claim is simply a monetary one, a right by the taking of proceedings to override and pre-empt that statutory machinery. That is the first objection, and it is of course an objection in principle…”

A relevant factor in the exercise of the court’s discretion is the state of the proceedings at the time of any application. Thus, in Ronelp Marine Limited v STX Offshore and Shipbuilding Co Limited [2016] EWHC 2228 (Ch), Norris J said that it was “a factor of significant weight” that the proceedings in that case were already “reasonably well advanced” when the application was made. He said that “the nearer the outcome of the proceedings, the greater the weight to be attached to that factor.”

Considerations of conduct on both sides are relevant factors in deciding whether the court should exercise its discretion in favour of, or against, granting the necessary permission. Two particular cases were drawn to my attention.

THE APPLICATION FOR PERMISSION TO CONTINUE: ANALYSIS

For the reasons set out below, I have concluded that, in this case, I would have granted the claimant’s application to continue the proceedings so as to hear the separate enforcement application. I reach that conclusion for two reasons. The first is on a strict application of the principles I have noted above. The second is on a separate consideration of the principles applicable to adjudication enforcement. I set out my analysis below.

By reference to Atlantic Computer Systems, I consider that the relevant balancing exercise favours allowing the claimant to continue with the enforcement application. There is no evidence that the purpose of the moratorium, namely to provide assistance to any administrators, would be jeopardised if I provide the court’s conclusion on the jurisdiction question. Indeed, I accept Ms Briggs’ submission that, on analysis, any administrators who may be appointed would be assisted by that determination, because it would mean that they would have an answer to the only issue between the claimant and the defendant. The same considerations would apply to the liquidator who has now been appointed.

Although Mr Winser argued that any judgment against the defendant arising out of the enforcement application ran the risk of preferring the claimant over other creditors, no authority was provided in support of that submission. I do not believe it to be right. Even armed with a judgment in its favour (if that is what it gets) the claimant would still only be an unsecured creditor. Its status as a creditor would not be enhanced by any judgment.

Common sense also dictates that it would be appropriate and just for the court to hear the application, because both parties have incurred the costs of arguing the jurisdiction question. No benefit to anyone would be gained by the court now declining to answer that question.

Finally, when considering questions of fairness and conduct, it seems to me that it would be inequitable if the court did not give judgment on the jurisdiction issue. In my view, the claimant has acted properly throughout and has, at considerable expense, obtained a lengthy adjudicator’s decision, which is almost entirely in its favour, on the merits of its dispute with the defendant.

The defendant, by contrast, has behaved in a way which should not be rewarded by the court. Its defaults include:

On the material before the court I conclude that, on the balance of probabilities, the conduct to which I have referred means that the defendant has been playing something of a deliberate double game: the paucity of information in the NOIs; the failure to appoint an administrator despite 3 such NOIs; and the failure to disclose the NOIs to the claimant and the court, all point inexorably to that conclusion. The fact that the defendant has waited until today, following the expiry of three different 10 day periods, to appoint a liquidator, might also be thought to be relevant to that conclusion.

For these reasons, therefore, I conclude that, had the moratorium continued, I should have exercised my discretion in favour of allowing the claimant’s application to continue with the enforcement hearing.

As noted above, there is a second, separate reason, why I have reached that conclusion. That concerns the nature of adjudication itself. The nature and purpose of adjudication, introduced by the Housing Grants (Construction and Regeneration) Act 1996, has been comprehensively summarised by Chadwick LJ in Carillion Construction Ltd v Royal Devonport Dockyard Ltd [2005] EWCA Civ. 1358. He said:

“85.

The objective which underlies the Act and the statutory scheme requires the courts to respect and enforce the adjudicator's decision unless it is plain that the question which he has decided was not the question referred to him or the manner in which he has gone about his task is obviously unfair. It should be only in rare circumstances that the courts will interfere with the decision of an adjudicator. The courts should give no encouragement to the approach adopted by DML in the present case; which (contrary to DML's outline submissions, to which we have referred in paragraph 66 of this judgment) may, indeed, aptly be described as “simply scrabbling around to find some argument, however tenuous, to resist payment”.

86.

It is only too easy in a complex case for a party who is dissatisfied with the decision of an adjudicator to comb through the adjudicator's reasons and identify points upon which to present a challenge under the labels “excess of jurisdiction” or “breach of natural justice”. It must be kept in mind that the majority of adjudicators are not chosen for their expertise as lawyers. Their skills are as likely (if not more likely) to lie in other disciplines. The task of the adjudicator is not to act as arbitrator or judge. The time constraints within which he is expected to operate are proof of that. The task of the adjudicator is to find an interim solution which meets the needs of the case. Parliament may be taken to have recognised that, in the absence of an interim solution, the contractor (or sub-contractor) or his sub-contractors will be driven into insolvency through a wrongful withholding of payments properly due. The statutory scheme provides a means of meeting the legitimate cash-flow requirements of contractors and their subcontractors. The need to have the “right” answer has been subordinated to the need to have an answer quickly. The scheme was not enacted in order to provide definitive answers to complex questions. Indeed, it may be open to doubt whether Parliament contemplated that disputes involving difficult questions of law would be referred to adjudication under the statutory scheme; or whether such disputes are suitable for adjudication under the scheme. We have every sympathy for an adjudicator faced with the need to reach a decision in a case like the present.

87.

In short, in the overwhelming majority of cases, the proper course for the party who is unsuccessful in an adjudication under the scheme must be to pay the amount that he has been ordered to pay by the adjudicator. If he does not accept the adjudicator's decision as correct (whether on the facts or in law), he can take legal or arbitration proceedings in order to establish the true position. To seek to challenge the adjudicator's decision on the ground that he has exceeded his jurisdiction or breached the rules of natural justice (save in the plainest cases) is likely to lead to a substantial waste of time and expense — as, we suspect, the costs incurred in the present case will demonstrate only too clearly.”

Proceedings issued to enforce the decision of a construction adjudicator therefore differ in significant respects from other kinds of commercial proceedings or monetary claims. I venture to suggest that the regime described by Chadwick LJ is unique, without any real parallel in other parts of the High Court. Adjudication enforcement proceedings such as these presuppose that there has already been a decision, on the merits, by an adjudicator, that there is a sum of money which, prima facie, is due and owing under the contract or pursuant to statute. Indeed, such enforcement proceedings presuppose that the defendant is in breach of contract or in breach of statute for not paying the sum found due by the adjudicator. Accordingly, proceedings such as these, where all that remains is an enforcement hearing (which itself turns on just one point) more than meets Norris J’s test in Ronelf. In addition, I would conclude that such a situation is, in the overall run of commercial litigation, “exceptional” for the purposes of the test set out by Patten J in AES Barry.

Mr Winser sought to argue that a claim to enforce the decision of an adjudicator was rather less than a monetary claim, because such a decision is only temporarily binding and may be subsequently revisited by a court or an arbitrator. I disagree with that analysis. The important thing is that the 1996 Act, and the standard forms of construction contract which have been amended to reflect the Act, make the adjudicator’s decision one that is binding on the parties. It must therefore be honoured.

For all those reasons, therefore, I consider that a party such as the claimant, who has a decision in its favour from an adjudicator, is in a much better position than most to argue that the court should exercise its discretion to continue to an enforcement hearing. That is a second reason why I would have allowed the claimant’s first application if the moratorium had remained in place.

APPLICATION TO ENFORCE: APPLICABLE PRINCIPLES

As I have indicated, the only point taken by the defendant in seeking to resist the enforcement of the adjudicator’s decision is the suggestion that the decision should not be enforced because the adjudicator exceeded his jurisdiction by deciding questions of extensions of time and certain modest claims (VO 7 and VO 12) for prolongation costs. In considering that issue, I have found the authorities noted below to be relevant. Again I have sought to gather them under particular sub-headings.

It has been repeatedly said that, when considering the adjudicator’s jurisdiction, the most important document in the adjudication process is the notice of intention to refer a dispute to adjudication, commonly known as the notice of adjudication: see University of Brighton v Dovehouse Interiors Limited [2014] EWHC 940 (TCC). When undertaking that exercise the court, and indeed the adjudicator, should not adopt an overly legalistic analysis of what the dispute between the parties might be. The court should instead take a pragmatic view of the notice, set against the relevant factual background: see Cantillion v Urvesco Limited [2008] EWHC 282 (TCC).

Of course, the dispute which the adjudicator has to decide is capable of being expanded or refined by the parties through their subsequent conduct. This can arise in two ways.

First, it can arise out of any cross-claim which might be made by the responding party. In Pilon Limited v Breyer Group Limited [2010] EWHC 837 (TCC), I said at paragraph 26:

“That is only common sense: it would be absurd if the claiming party could, through some devious bit of drafting, put beyond the scope of the adjudication the defending party’s otherwise legitimate defence to the claim.”

Of course, depending on the facts, the same considerations would apply the other way round.

Secondly, the parties can by their conduct extend the adjudicator’s jurisdiction. Authority for this latter proposition can be found in the two decisions of Akenhead J: Herbosh-Kiere Marine Construction Limited v Dover Harbour Board [2012] EWHC 84 (TCC) and Brims Construction Limited v A2M Development Limited [2013] EWHC 3262 (TCC).

APPLICATION TO ENFORCE: ANALYSIS

For the reasons set out below, I am in no doubt that the defendant’s jurisdiction argument is hopeless. There are two separate reasons for that.

First, I consider that the dispute referred to the adjudicator in the notice of adjudication (paragraph 8 above) was “the amount of additional monies [the claimant] is entitled to be paid by [the defendant] over and above monies received to date.” It is common ground that the defendant had by this stage deducted a large sum by way of liquidated damages from the sums otherwise due to the claimant.

Thus, in order to ascertain what the claimant’s entitlement was over and above the amounts already paid, the adjudicator was necessarily obliged to consider whether or not that deduction had been properly made. That in turn required the adjudicator to decide who was responsible for the delays on site. Accordingly, there can be no doubt that the issue of delay was covered by the wide words of the notice of adjudication and the adjudicator had the jurisdiction to address it.

The defendant’s contention appears to be based on the narrow point that there was no express reference to an entitlement to an extension of time in the notice of adjudication. For the reasons that I have given in the previous paragraph, I consider that to be immaterial. It is also an excessively legalistic interpretation which is contrary to the principles set out in Cantillion.

In my judgment, the conclusion that the adjudicator had the jurisdiction to deal with extensions of time, and the prolongation costs which formed part of VO7 and VO12, can come as no surprise. In Witney Town Council v Beam Construction (Cheltenham) Limited [2011] EWHC 2332 (TCC) a very similar argument arose. At paragraph 40(h), Akenhead J explained how and why he rejected the submission:

“There were clear links between the final account and some of the other matters in issue. Thus, the disputed prolongation claims in the final account could not be resolved without deciding what if any extension of time was due to Beam because it was only if and to the extent that there was an entitlement to extension that the prolongation entitlement could be established. Similarly, one could not determine the insurance claim, the level of retention to be maintained and the prolongation cost without determining when and if Practical Completion had occurred.”

In my view, precisely the same considerations apply here.

In answer to all of this, Mr Winser suggested that the position here was different because the claimant had never previously sought an entitlement to an extension to time. That is, with respect, an artificial point. As the documents before the adjudicator made plain, prior to the wrongful repudiation of their contract on 1 July, the claimant had had no need to make a formal application. Thereafter, because of the repudiation, the extension of time mechanism was no longer operable. No indication of any intention to deduct LAD’s was given by the defendant prior to the wrongful repudiation of the contract. Thereafter the claimant complained about the deduction of liquidated damages.

The second reason why I consider that the adjudicator had the necessary jurisdiction arises out of the defendant’s own response in the adjudication. That response dealt in detail with how and why the defendant was entitled to deduct almost £1 million by way of liquidated damages. Thus, even if (contrary to my primary view) the disputed cross-claim for liquidated damages had not formed part of the notice of adjudication, it was expressly raised by the defendant by way of cross-claim, and was not said by the claimant to be outside the adjudicator’s jurisdiction. By that process too it came within the adjudicator’s jurisdiction. Any other conclusion would be absurd, as I pointed out in Pilon, or “perverse”, as the adjudicator correctly pointed out at paragraph 185 of his decision.

Although Mr Winser argued to the contrary, I consider that Ms Briggs is right to say that, in effect, what the defendant was seeking to do was to tell the adjudicator that it had an entitlement to a large sum by way of liquidated damages, and that this was something which the adjudicator simply had to accept, without further consideration. In other words, the defendant was saying that the adjudicator did have the jurisdiction to consider questions of delay, but only on the basis that he decided that the defendant was entitled to the full sum by way of liquidated damages.

In my view that approach is unsustainable. It is very like an argument advanced before Jefford J recently in Imperial Chemical Industries v Merit Merrell Technology Limited [2016] EWHC B30 (TCC). Although the point there was about the relevance of an earlier adjudication, her remarks at paragraph 32 of her judgment are equally applicable to the present case. She said:

“The answer to his second question and, indeed to ICI's defence to enforcement, is in my judgment, to be found in the position set out in paragraph 16 above. The dispute referred to this adjudicator was whether MMT was entitled to payment on Application no. 23. ICI took no objection to his jurisdiction over that dispute: on the contrary they asked him to decide it. That is the dispute that he decided. It is ICI's case that he decided it on a wholly wrong basis but that is not a ground for resisting enforcement. The effect of ICI's submission is that Mr Wright's jurisdiction was limited to deciding the dispute in a particular way or on a particular basis. That cannot be right. As Mr Mort QC reminded me in the course of the hearing, it is the decision of the adjudicator that is binding and not his reasoning.”

For these reasons, therefore, I am entirely confident that the adjudicator had the necessary jurisdiction to decide all questions of delay, extensions of time, liquidated damages and prolongation costs. There is nothing in the defendant’s jurisdiction argument. I therefore propose to enter judgment in favour of the claimant in the sums awarded by the adjudicator.