UK Adjudication Review

Our summer adjudication review includes the following updates:

Using a winding-up petition to enforce an adjudication is unwise (a review of Victory House General Partner Ltd, Re A Company [2018] EWHC 1143 (Ch) in which the court refused a winding-up petition to enforce an adjudication); The court's approach to set-off claims in adjudication enforcement proceedings (a review of MI Electrical Solutions Ltd v. Elements (Europe) Ltd [2018] EWHC 1472 (TCC) in which the court refused to allow a contractor to set-off its cross-claim against an adjudication decision); and A last word on the benefits of adjudication Using a winding-up petition to enforce an adjudication is unwise

You've made it through an adjudication, got a decision in your favor - but the "losing" party is refusing to pay up. What then?

The usual way to enforce an adjudication decision is by starting enforcement proceedings under the Civil Procedure Rules (CPR) using either Part 7 or Part 8. If the debtor can't pay, issuing winding-up proceedings against the debtor company might seem attractive. Such proceedings would be based on the debtor's inability to pay its debts as they fall due and would follow the debtor's failure to pay within three weeks of receiving a statutory demand for payment.

However, winding-up petitions are a risky approach to enforcement as shown by cases such as Shaw v. MFP Foundations & Piling Ltd. The court will dismiss them if the debt is disputed in good faith on substantial grounds - for example if there is a cross-claim. In Victory House General Partner Ltd, Re A Company [2018] EWHC 1143 (Ch), Morgan J summarised the legal principle the court will consider when dealing with a petition involving a disputed debt:

"Where a debt is bona fide disputed on substantial grounds the normal response of the court is to treat the [winding-up] petition as inappropriate, as being an abuse of the process and as being one the court should dismiss, leaving the alleged creditor to pursue the alleged debt in the other ways available to it."

Victory House and other decisions make clear that winding-up proceedings are not suitable for adjudication enforcement. There are obvious downsides to winding up a debtor for a creditor. For example, the creditor will join the ranks of the debtor's unsecured creditors, there is no guarantee of recovery and any amounts recovered will inevitably be much smaller than the debt and paid late. Further, winding-up orders have an air of finality: such proceedings are out of step with the aims of the Housing Grants, Construction and Regeneration Act 1996 as amended (the Construction Act) to give a swift but reviewable decision to keep cash flowing.

In Victory House, Morgan J decided that the employer's cross-claim made it inappropriate to wind up the company because it had not paid the judgment debt. His decision should give those considering this form of enforcement action more pause for thought.

What was the background?

RGB P&C Limited (the contractor) contracted with Victory House General Partner Ltd (the employer) on a standard form JCT Design & Build Contract 2011 to carry out development and conversion works (the contract). The contract was compliant with the Construction Act. When a payment dispute arose on interim application (IA) 30, the contractor referred the dispute to adjudication (No1) and was awarded £682,802.88 (plus VAT and interest).

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