Keeping the wolf from the door…. Stays on the enforcement of Adjudication Awards

The UK faces a difficult winter with inflation and the soaring cost of energy putting a very real squeeze on incomes for the foreseeable future. The recently announced Government programmes will provide some assistance to families and businesses. However, the revised energy price cap for this winter is still 96% higher than it was over the same period in 2020/20211  and the current rate of inflation (as of August 2022) is 8.6% - a rate not seen since 1990/19912 .  All this means that everyone is having to do more with less or do without entirely and the construction industry is no exception.

In its 2022 International Construction Costs Review, Arcadis calls it ‘the year of inflation’3 .  Positively, this report does suggest broad levels of growth coming out of the pandemic, however, it also notes that the industry is particularly affected by price fluctuations and generally the first to be hit by inflationary increases. The report also notes that London has claimed the top spot in being the most expensive city in the world to build in. The Construction Leadership Council (CLC) put concerns about price increases firmly on its agenda as part of its ‘Vision and Priorities’ webinar in September4 ,  with ‘mitigating the impacts of inflation’ being its number one challenge. Further to this, the Building Cost Information Service (BCIS), in conjunction with RICS, has issued guidance titled ‘Mitigating Inflation Risks on Projects’5 .  Overall, the tenor of these documents is that inflation is, for at least the medium term, here to stay and everyone in the industry needs to reckon with it. 

The BCIS guidance focuses on implementing some form of index linked pricing in the parties’ contractual framework. This appears sensible but will necessarily impact on the Employer which may have limited funds with which to complete the works. Where the contractual model is based on fixed sums, the inflationary risk is therefore put on the Contractor to deliver the promised project at the stated price. In either scenario, the outcome means that a) payment disputes are likely to increase and b) that the risk of insolvency of either side also increases markedly. In August this year, Construction Management reported levels of contractor insolvencies not seen in over a decade6 .  Further, the Bank of England’s recent interest rate hikes (from just 0.1% in December 2021 to 2.25% in September 2022) means that many firms will struggle to service the debt they acquired over the pandemic.

The additional payment disputes coming out of live projects will ultimately filter to Adjudication decisions. Given the current financial climate, it is going to be especially problematic for either side to be paying over sums that they do not consider properly due. The binding but not final nature of Adjudication is intended to keep the cash flowing but what about if the ‘final’ resolution of the dispute turns to ‘never’ because the paid party has gone insolvent. This being the case, I thought it a timely opportunity to revisit the law governing when paying parties can seek a stay on the enforcement of an Adjudicator’s award.

Firstly, it is worth remembering that staying the enforcement of an award has nothing to do with the correctness (or otherwise) of the decision itself. As we are often reminded by the Courts, Adjudication decisions are to be enforced and the award paid unless there are proven breaches of natural justice or the Adjudicator lacked the necessary jurisdiction7 .  Obtaining a stay on the enforcement of an award does not affect the overall status of the decision but instead looks at the appropriateness and/or fairness of forcing the losing party to pay up at that particular moment in time.

A good place to start is by looking at the now well-established principles coming out of Coulson MJ’s (as he then was) decision in Wimbledon v Vago8 .  This decision, now 17 years old, details the grounds on which a valid Adjudication decision may be stayed. Here, Mr Justice Coulson had to reconcile one of the guiding principles of the Construction Act reform – pay now, argue later – which the potential injustice to the paying party who may never be repaid if the Adjudicator’s decision is ultimately overturned. Whether or not to grant a stay is a matter of judicial discretion and the Judgment set out the relevant authorities which, largely, militated in favour of enforcement. Notwithstanding this, the previous cases had focused the evidence needed to show that the financial standing of the winning party was so perilous as to give rise to genuine concerns that the losing party would be prejudiced. Ever the pragmatist, Mr Justice Coulson sets out what must be evidenced in order to establish the special circumstances9  needed to persuade a judge to exercise his or her discretion and grant a stay:10

  • Demonstrating the 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 – in such circumstances, the Court may grant a stay;
  • That the claimant is in insolvent liquidation, or there is otherwise no dispute that the claimant is insolvent – the Court will usually grant a stay of execution; 
  • Even if the Claimant’s financial position suggests that it will be unable to repay the judgment sum - the Court will not usually grant a stay unless:
    a)    “the claimant's financial position is the same or similar to its financial position at the time that the relevant contract was made”; or
    b)    “the claimant's financial position is due, either wholly, or in significant part, to the defendant's failure to pay those sums which were awarded by the adjudicator”

In addition to the above, his Lordship was at pains to stress that these considerations as to whether an exercise of discretion is appropriate must to judged against the overarching principles that a) adjudication is intended to be a “quick and inexpensive” form of dispute resolution (albeit, temporary) and b) the winning party “should not generally be kept out of its money”.11   It is also to be noted that the Judge referred specifically to ‘insolvent liquidation’ rather than other forms of insolvency procedure, such as CVAs. In the latter circumstances, it is much less clear cut as to whether the paying party would suffer real prejudice and so every instance will be considered on a case by case basis.12

These remained the guiding principles underlying the many instances where a stay was sought in the TCC in the years that followed. That was until 2018 when a further ground on which the Courts may consider a stay to be appropriate was added in the case of Gosvenor v Aygun13 . Whilst very much decided on its facts, Mr Justice Fraser considered that:

“if the evidence demonstrates that there is a real risk that any 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, then this would also justify the grant of a stay”14

A three judge panel Court of Appeal (including one Lord Justice Coulson) affirmed this decision later that year.15  Noting the unusual facts and that this new ground was not likely to be of broad application, it was nevertheless held to be “a correct statement of principle”.16  The anticipated limited application of this new ground has been borne out in subsequent decisions. Notably, Mr Roger Ter Haar KC (sitting as a Deputy High Court Judge) was asked to grant a stay based on the decision in Gosvenor in the 2020 case of Broseley London Limited v Prime Asset Management Limited.17  Here, the Judge did not consider that the party seeking the stay had dispensed the “heavy burden” of establishing the likelihood that the Claimant company’s Directors would dissipate assets in order to prevent any judgment sum ultimately being repaid, and the Adjudicator’s award was enforced.18

The overall upshot is that there is a very high evidential threshold to reach in order to obtain a stay on the execution of an otherwise enforceable Adjudicator’s decision. The most straightforward way to do so would be in the unhappy scenario where the other party is already in insolvent liquidation. All this tells us that seeking a stay of an Adjudication award on the basis that the payee’s finances are ‘a bit shaky’, will not likely succeed. The Court has also provided guidance that the payor’s financial situation will also be of little to no weight. As Mr Justice Coulson found in Volker Stevin v Holystone Contracts,19  even if the paying party could demonstrate financial dire straits, the ‘pay now, argue later’ principle of Adjudication would be severely undermined “if a losing party could avoid enforcement of the decision simply by pleading poverty”.20

In practical terms, every party on live projects should be hyper aware of their payment obligations and ensuring that the unforgiving deadlines for pay less notices are adhered to. For upcoming projects, agreeing suitable pricing models and making very careful choices regarding the supply chain are key. Whilst many will have no option but to rely on their strict legal rights, it may be timely to dust off the Cabinet Office guidance issued in May 2020 in response to the pandemic where we were asked to act “reasonably and fairly” and in “a spirit of co-operation and aiming to achieve practical, just and equitable contractual outcomes”.21  In response to which, the author remains hopeful, if not optimistic.

Katherine Butler, Fenwick Elliott LLP