RMC Building and Civil Engineering Limited v UK Construction Limited [2016] EWHC 241 (TCC)

Judgment date: 15 February 2016

A party seeking a full or partial stay of enforcement of a judgment must provide credible evidence showing (a) that it will suffer severe financial hardship if required to pay the full amount or (b) that there is a real risk that it may be unable to recover any overpayment (if it is subsequently shown that there was one) from the other party when the dispute is finally resolved. As such, applications of this kind will seldom be successful.

Technology and Construction Court, Mr Justice Edwards-Stuart

Background

The case concerned an application made by a ground works sub-contractor for summary judgment to enforce the decision of an adjudicator in its favour.

The defendant main contractor, UK Construction Limited, engaged the claimant sub-contractor, RMC Building and Civil Engineering Limited, to supply labour, plant and materials for the installation of ground works and drainage for a housing project in Bedfordshire.

On 6 May 2015, the claimant submitted an interim application for payment (“IA8”) of £248,053. As no pay less or other notice was served by the defendant, the claimant argued that it was entitled to payment of the sum claimed in IA8 under the Housing Grants, Construction and Regeneration Act 1996 (the “Construction Act") and Scheme for Construction Contracts (the “Scheme"). Apart from a small payment on account (which reduced the sum due to £216,129), the sum due under IA8 remained unpaid.

On 30 September, after four or five months of fruitless negotiations, the claimant commenced adjudication proceedings. The defendant raised challenges to the Adjudicator's jurisdiction, but the Adjudicator rejected them and proceeded with the adjudication.

On 18 November, the Adjudicator ordered the defendant to pay the sum claimed, along with further sums by way of costs and expenses and interest. The defendant did not comply with the Adjudicator’s decision; the claimant applied for summary judgment to enforce the award.

By an order dated 5 January 2016, the hearing of the claimant’s application was fixed for 3 February. On 29 January, the defendant issued a claim form under Part 8 for declarations that:

(1) the claimant’s claim could not exceed £85,450.26 – such figure being the sum which the claimant had agreed to accept by virtue of an e-mail of 1 September 2015; and

(2) the true value of the claimant's account led to a net payment due of £39,752.29 (being the defendant’s valuation of 28 August 2015).

Issues

In October 2014, it appeared [para 6] that a letter of appointment came into existence. The defendant asserted that this document formed the basis of the contract between the parties (but, neither during the adjudication nor thereafter, did it provide any evidence that this document was ever sent to the claimant); the claimant denied ever receiving it. The relevance of the letter was that it prescribed TecSA as the adjudicator nominating body; as the Adjudicator had not been nominated by TecSA, the defendant submitted that the Adjudicator had not been properly appointed and, therefore, had no jurisdiction.
The issues which arose on the claimant’s application were whether:

1. the Adjudicator had been appointed by the wrong nominating body;
2. at the time the claimant issued its notice of adjudication, there was a dispute in existence (and whether IA8 had been withdrawn);
3. the Adjudicator had exceeded his jurisdiction by awarding a sum in excess of the "cap" imposed by paragraph 2(4) of Part II of the Scheme;
4. an adjournment of the enforcement proceedings should be granted so that it could be heard at the same time as the defendant's Part 8 claim – and, if not, whether the defendant should be granted a total or partial stay of enforcement (as it would suffer manifest injustice if enforcement proceedings went ahead before the issue of declaratory relief was decided); and
5. there had been a repudiation of the contract on the on the part of the claimant, which was accepted by the defendant, thereby discharging it from performance of any further obligations under that agreement.

An important issue for the Court (“A point which lies at the heart of the present dispute” [para 11]) was the fact that the defendant had put before the Adjudicator some of the e-mail exchanges that had taken place between the parties during the negotiations concerning IA8 between June and September 2015. The claimant argued that the defendant should not have put the email exchanges before the Adjudicator as the communications in question were all without prejudice; as the dispute was not resolved, none of those documents should have been put before the Adjudicator and could not be relied on for the purposes of the application.

Decision

• The Court found [para 16] that TeCSA was not the adjudicator nominating body, that the Adjudicator had been appointed properly and the defendant’s challenge on this ground therefore fell away.
• The Court stated [para 18] that, before considering the second issue before it (whether there was, in fact, a dispute and whether IA8 had been withdrawn), it had to determine whether the email communications in question (upon which the defendant relied) were made without prejudice and, therefore, were not admissible.
  • The Court stated [para 26] that “… the exchanges between the parties referred to in the Reply are a classic example of the type of discussions that are protected by the without prejudice rule” and held [para 28] that “… the evidence of these discussions or any admissions made in the course of them should not have been put before the adjudicator in the first place and they cannot be relied on by UKC in these proceedings as admissions against interest by RMC.”

• In relation to the second issue itself:
  • The Court noted [para 29] that the defendant “had to make” the allegation that IA8 had been withdrawn “before the date by which [the defendant] contended that it had to issue a pay less notice” because “once the date for service of a pay less notice had passed in relation to the 6 May application, the amount stated in that application became a sum that [the defendant] had to pay”.
  • The Court examined the sequence of events from the end of April until the end of September 2015 before concluding [para 38] that “… the dispute about RMC’s application of 6 May 2015 was still live and remained unresolved” and [paras 39 and 40] the Adjudicator had decided, on the material put before him, that the claimant had not withdrawn its claim: “… this conclusion was plainly open to the adjudicator and was a response to one of the questions that he had to determine. Whether it is right or wrong is irrelevant: the question was squarely before him and he answered it. Indeed, on the material that was before him it seems to me that his decision was amply justified.”
• In relation to the third issue, whether the Adjudicator had exceeded his jurisdiction by awarding a sum in excess of the "cap" imposed by paragraph 2(4) of Part II of the Scheme, the Court looked at the paragraph in detail and dismissed the jurisdictional challenge [para 44] “on the very simple ground” that the defendant failed to show what the contract price was.
• The Court refused [paras 46 and 47] to adjourn the application, describing the defendant’s submission as "hopeless", due to their failure to provide reasons for why their application was made so late. It noted that, whilst having two hearings rather than one would increase costs, the responsibility was on the defendant to take swift action if it wished to have one hearing adjourned so that all the issues could be resolved together.
• The Court described [para 52] the defendant’s assertion that it had accepted a repudiatory breach of contract by the claimant as “wholly unsustainable”. It stated [para 50] that the defendant’s submission was wrong for at least three reasons. First, the defendant continued to issue certificates for payment (the very thing it submitted it was discharged from doing). Second, it made no formal statement to the effect that it was accepting a repudiatory breach of contract by the claimant. Finally, the fact that it wrote to the claimant in December 2015, about its assertion that the claimant had breached the terms of the contract in August 2015, was “consistent only with there being a subsisting contract”.
• Having rejected the defendant’s challenges to the jurisdiction of the Adjudicator and its complaint that the Adjudicator wrongly decided the question of whether IA8 had been withdrawn, summary judgment was awarded to the claimant as claimed.
• The defendant argued that enforcement of the judgment should be stayed, as it would be manifestly unjust not to do so. In responding to the argument that, as a result of a stay, the injustice to the defendant would greatly outweigh any detriment suffered by the claimant (and this could, in any event, be compensated by a subsequent award of interest), the Court held [para 56] that the provisions introduced by the Construction Act and the Scheme are, in essence, about maintaining cash flow: “That purpose is not achieved by simply giving judgment for a sum and then staying its enforcement: interest is often no compensation for a lack of cash flow".
• The Court differentiated the facts in Galliford Try Building Ltd v Estura Ltd [2015] EWHC 412 (relied on by the defendant) from those in the present case; in this case, the defendant could issue proceedings immediately to determine the true value of the sum due to the claimant, and there would be no need to follow the Construction and Engineering Pre-Action Protocol, as the parties had already been through that process.
• The Court noted that it was incumbent on a party seeking such a stay to show either that (a) it would suffer severe financial hardship if required to pay the full amount or (b) there would be a real risk that it may be unable to recover any overpayment from the other party if the dispute is finally resolved in its favour. However, the Court refused to impose a stay of the full amount, on the grounds that it would be unjust to the claimant as the defendant would then have no incentive to pursue diligently proceedings for a determination of the true amount due to the claimant.
• The Court also refused to impose a stay of part of the amount; the defendant had failed to put forward any evidence as to its financial situation, and the Court would not make assumptions in its favour. There was also no evidence that the claimant would be unable to repay any balance between the judgment sum and its true entitlement on a final determination.

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