Final accounts and the challenge of staying execution in adjudication enforcement – the latest judgment from the TCC

The latest Technology and Construction Court (TCC) judgment on payment and the enforcement of an adjudicator's decision has just been handed down, and has some key lessons, particularly in the current crisis.

We analyse the decision in Broseley (London) Ltd v Prime Asset Management Ltd [2020] and the significant issues covered in relation to adjudication enforcement and the resolution of final accounts.

Background

• PAML appointed Broseley to carry out refurbishment works for PAML at Stanley House in Chelsea under a construction contract (the Contract) governed by the Housing Grants, Construction and Regeneration Act 1996 as amended (the Construction Act). The works were commenced in December 2017.
• In July 2019, Broseley submitted a payment application in the sum of £485,216.17 plus VAT (Valuation 19). PAML failed to give a payment notice and, although it did give a pay less notice, this was late, so invalid.
• Accordingly, the amount claimed by Broseley in Valuation 19 should have been paid by 1 August 2019. PAML did not pay and Broseley commenced an adjudication for payment of Valuation 19 and was successful - the adjudicator's decision was issued on 12 September 2019 (Adjudication 1).
• As PAML did not pay the amount awarded by the adjudicator (£485,216.17 plus VAT and interest), PAML commenced these proceedings to enforce that decision. Prior to the hearing, PAML in fact accepted that judgment should be entered against it as claimed, but applied for a stay of execution.
• By way of further background, there were two other adjudications between the parties relating to the Contract - the same adjudicator dealt with all three adjudications. The outcomes of the second and third adjudications are summarised below.
  • Adjudication 2: decision dated 1 October 2019: declarations relating to Valuation 20.
  • Adjudication 3: decision dated 28 November 2019 - Broseley obtained a declaration that it had lawfully terminated the Contract on 29 September 2019 on the basis that PAML had failed to pay sums due to Broseley, in particular the amount due pursuant to Valuation 19 (confirmed in Adjudication 1).

The TCC proceedings - the context of PAML's application for a stay of execution

As set out above, by the end of March 2020, PAML no longer opposed Broseley's application to enforce, but had applied for a stay of execution for payment.

PAML sought a stay of execution of around two months in order (originally) to allow a "true value" adjudication to take place - PAML's contention was that on a full evaluation of the account, a significant sum would be due from Broseley to PAML.

PAML's application was made on the following grounds, based on earlier case law - in essence, seeking to establish factually that Broseley's financial position was bleak:

1. the probable inability of Broseley to repay the judgment sum at the end of the trial of the underlying issues;
2. Broseley's financial position being worse than its financial position at the time when the Contract was made;
3. Broseley's financial position was not due to PAML's failure to pay the sum awarded by the Adjudicator;
4. a real risk that any future final judgment would go unsatisfied by reason of Broseley organising its affairs with the purpose of dissipating or disposing of the adjudication sum so that it would not be available to be repaid.

Mr Roger ter Haar QC sitting as a Deputy High Court Judge in the TCC highlighted the relevance to PAML's application of two contextual points:

• the delay by PAML in seeking resolution of the final account - despite accepting there was a genuine dispute over the final account, in the Judge's view, the delay was "a crucial factor" in that PAML had been "extremely slow to show any signs of any real desire to grapple with the amount of the true value of the account ….."; and
• the fact that by time of the hearing of this application (for a stay), there were no extant adjudication or court proceedings already commenced seeking a resolution of the underlying issues between the parties. (Broseley had commenced a further adjudication on the final account but this referral was subsequently withdrawn.)

Could PAML raise a "true value" final account adjudication without paying the sum awarded (re Valuation 19) in Adjudication 1?

It was argued on behalf of PAML that PAML could raise a "true value" final account adjudication without first paying the amount found due in Adjudication 1 because of the outcome of Adjudication 3 and because the adjudication contemplated is of the final account post-termination.

Referring to the Court of Appeal judgment in Grove Developments Limited v S&T (UK) Limited [2018], reviewed in our update in November 2018, the Judge stated

" Whilst the S & T decision does not expressly concern the present situation, where what is suggested as the possible subject of an as yet unstarted adjudication is the determination of a notional final account where the amount of that final account would be dependant [sic] on the validity of Decision No. 1, the ability to mount such an adjudication following upon Decision No. 3 attacking the validity of that Decision without prior payment of the amount awarded in Decision No. 1 would be a remarkable intrusion into the principle established in S & T: it would permit the adjudication system to trump the prompt payment regime, which is exactly what the Court of Appeal said in paragraph [107] of that case would not be permitted to happen."

The TCC therefore held that it was not open to PAML to challenge the decision in adjudication 1 of September 2019 concerning Valuation 19 in a further adjudication, without first paying the amount due as directed by the adjudicator in adjudication 1.

The Judge went on to say that for those reasons, a stay pending an adjudication did not reflect any possible factual option, in circumstances where Broseley had withdrawn its referral (for a 4^th adjudication).

Should there be a stay pending resolution of the final account in Part 7 proceedings?

Having considered the factual record of steps taken or not taken by PAML in the various adjudications and PAML's failure to pursue with due diligence a full analysis of the final account in proceedings, plus relevant case law, the Judge refused PAML's application for a stay of execution.

For completeness, the Judge did go on to consider the four grounds put forward by PAML in support of its application for a stay (as set out above). In terms of the alleged probable inability of Broseley to repay the judgment sum at the end of the trial of the underlying issues, the TCC held that PAML had not made out this ground, which was again fatal to its application. The 2^nd and 3^rd grounds put forward by PAML did not therefore need to be considered.

The 4^th ground was a serious allegation: is there a real risk that any future final judgment would go unsatisfied by reason of Broseley organising its affairs with the purpose of dissipating or disposing of the adjudication sum so that it would not be available to be repaid? The TCC held that PAML failed to discharge the heavy burden of proving this allegation.

The TCC Decision

The decision in Adjudication 1 of 12 September 2019 was enforced, with judgment against PAML in the sum of £485,216.17 plus VAT and interest, to be paid within 14 days of 9 April 2020.

Commentary

This latest decision is in line with Grove and subsequent case law and is particularly relevant in the current crisis with many businesses facing an uncertain future. Although relatively concise, the issues addressed in this judgment are complex and intertwined. From a practical perspective however, the key points are clear.

1. Ensure you know and comply with the notice and payment provisions of the Construction Act - in particular, ensure that the date for service of any pay less notice is not missed, and that you comply with any notice provisions in the contract as to the correct mode of service (post, email etc.) and the correct addressee. PAML could have avoided this costly entanglement of adjudications and proceedings simply by serving its pay less notice on time.
2. Be wary of delaying the finalisation of a final account where you are confident it will resolve in your favour - again, PAML's delay in pursing the final account was critical in the TCC's analysis. In most cases, prevaricating will not improve your position.

If you have queries on this or any related issue, please call Ashley Pigott.