This month’s contract clinic question comes from a contractor on the sharp end of an adjudication award over a cladding remediation project. Nicholas Zeolla sets out the options for contesting an adjudication.
The question:
Help – I have received a (wrong) adjudication award against my construction company as a result of a dispute over costs resulting from delays to cladding remediation on a residential block in Coventry. I am worried that if I pay out the award now, the subcontractor with the award will go bankrupt and I won’t be able to recover my money in the courts. What can I do?
The answer
One option in this scenario is to consider applying for a stay of execution of the adjudication award until the issues in the adjudication have been finally determined through the courts.
In principle, a court may grant a stay of execution of a judgment. This will either be absolutely, or for such period and subject to such conditions as it thinks fit, if the court is satisfied that “there are special circumstances which render it inexpedient to enforce the judgment or order”.
The principles applicable to the granting of a stay of execution of an adjudication award where there are concerns as to the solvency of a judgment creditor (in this case the subcontractor) were set out in Wimbledon Construction Co 2000 Ltd v Vago [2005] 101 Con LR 99, at paragraph 26.
That case recognised that a stay of execution may be appropriate where there is “a probable inability of the claimant to repay the judgment sum (awarded by the adjudicator and enforced by way of summary judgment) at the end of the substantive trial, or arbitration hearing”.
Where the claimant is actually in insolvent liquidation or where there is “no dispute on the evidence that the claimant is insolvent”, a stay will “usually be granted”.
That can be contrasted with where the claimant’s financial position suggests only a “probable inability” to repay the judgment sum. In that case it must (usually, at least) further be proved that:
- The claimant’s financial position has deteriorated when compared with when the contract was made; and
- The claimant’s poor and deteriorating condition was not caused either wholly or in significant part by the defendant’s failure to pay the sums awarded by the adjudicator.
Risk of unsatisfied judgment
It was further established in Gosvenor London Ltd v Aygun Aluminium UK Ltd [2018] BUS LR 1439 that a stay will be justified where there is a “real risk” that the judgment would go unsatisfied by reason of the claimant “organising its financial affairs with the purpose of dissipating or disposing of the adjudication sum so that it would not be available to be repaid”.
If any of the above factors are satisfied in relation to your award and the subcontractor in question, a stay of execution might be an appropriate solution for you. It is important, however, to bear in mind that:
- The burden will be on you (and your legal advisers) to establish that those factors are satisfied.
- You will not be entitled to “embark on a fishing expedition” to demand further information from the claimant to prove your case.
- It must be clear to the judge hearing the application that the financial position of the claimant is such that at any final determination of the award, the money paid out for the award is unlikely to be repaid by the claimant.
It is not necessary to have commenced proceedings in the courts already to obtain a stay of execution of an adjudication award. However, doing so is likely to be seen as helpful. In any case, it will be necessary to do so to undo the effect of the award which will only be ‘in suspense’ during a stay: Toppan Holdings Ltd v Simply Construct (UK) LLP [2021] Bus LR 27 at paragraph 44.
Conclusions
If the test for a stay of execution is satisfied, that is one way to avoid your concerns about the solvency of the subcontractor in your case. Any application for a stay of execution could sensibly be coupled with a jurisdictional and/or natural justice challenge against the enforcement of the adjudication award (if there are any).
In any case, you will need to at least show an intention to commence proceedings to seek a final determination on the issues referred to in the adjudication.
Nicholas Zeolla is a barrister at Atkin Chambers.
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