London Borough of Camden v Makers UK Ltd [2009] EWHC 2944 (TCC)

[2009] EWHC 2944 (TCC)

Case No. 2009 TCC6483

IN THE HIGH COURT OF JUSTICE

QUEEN’S BENCH DIVISION

TECHNOLOGY AND CONSTRUCTION COURT

Venue Royal Courts of Justice

Date Friday, 9 th October 2009

Before

MR. JUSTICE AKENHEAD

B E T W E E N:

Between

LONDON BOROUGH OF CAMDENClaimant

MAKERS UK LIMITEDDefendant

David Matthias QC (instructed by Camden legal department) appeared for Claimant

Richard Wilmot Smith QC and Karim Ghaly (instructed by Fenwick Elliott) appeared for Defendant

J U D G M E N T

[1]In this action Makers UK Limited (“Makers”) seeks summary judgment against the London Borough of Camden (“Camden”) in relation to an adjudication decision made by Mr. Malloy on 2nd July 2009, albeit corrected on 7th July. In that decision, he decided that Camden should pay Makers £1.3 million approximately, plus VAT, that Camden should pay interest and/or financing charges in the sum of £113,429.45 up to 2nd July, thereafter at a continuing daily rate of £50.45 and that Camden should pay for the adjudicator's fees and expenses.

[2]The background to this claim is that Makers and Camden entered into a construction contract dated 21st June 2006 in relation to substantial refurbishment work at the Whittington Estate, Highgate, New Town, London N19. Unfortunately, matters reached a stage in July 2007 in which (I use a neutral word) the contract was brought to an end. There is a substantial issue between the parties as to whether Camden was entitled to terminate the contract or whether Camden repudiated the contract by then terminating.

[3]This were two adjudications in this case. In the first one, the adjudicator decided that, in principle, it was Camden which had repudiated the contract. That came before the Court in 2008. Thereafter Camden became concerned by reason of what it perceived was the actual or impending insolvency of Makers, and because it feared that Makers would institute new adjudication proceedings seeking the financial consequences of or damages for repudiation as found by the adjudicator, it took steps to institute proceedings before the TCC which are now due for trial at the beginning of November 2009.In those proceedings, in effect, and I summarise in very broad terms, Camden seek declarations that it was entitled to terminate the contractual employment of Makers under the construction contract and/or that it was not it which repudiated the contract. The trial in that matter relating to liability is set down for 10 days next month.

[4]Unfortunately, Makers in that claim did not put its defence in in time. So it was the case that Camden obtained judgment in default. So the matter came before the Court on a second occasion in March 2009 in which Makers sought to set aside the judgment in default obtained by Camden. Again it came before me and, having heard the parties, I gave judgment on 27th March 2009(

[2009] EWHC 605 (TCC)

). Essentially, I allowed the application by Makers. Judgment was set aside and the matter has thereafter proceeded reasonably expeditiously and efficiently towards trial in November.

[5]In the course of argument Camden brought to the Court's attention the insolvency of Makers and I addressed that at Paragraphs 13 to 17 of that judgment. I found, on the information that had been put before the court, based largely on expert accountancy evidence, that Makers was insolvent in that, without the support of its parent company which it no longer had, its business was loss-making, it had a substantial negative value and it would be unable to repay money that was paid to it. That was a clear finding at that time in March 2009.

[6]The insolvency was relevant because Camden sought a condition to be imposed on the setting aside of the judgment to the effect that Makers should be prevented, without the permission of the court, from commencing any further adjudication proceedings: Camden did not want to have the distraction, cost and aggravation of having to deal with such adjudications. I was not prepared to impose such a condition. The reason for that is set out at Paragraphs. 31 and 32, and indeed elsewhere in the judgment. At Paragraph 41 I said this:

"Camden's argument essentially is that given that the court has had the opportunity to consider the setting aside of the default judgment and has wide case management powers in line with the overriding objective, it should take into account the likelihood that any future adjudication award against Camden will not be enforceable or any summary enforcement judgment against Camden would be stayed by reason of the poor financial position of Makers. Therefore, it contends the Court should impose the condition about not adjudicating on Makers to save expense in a broad sense, to save time and resource which would better be deployed in preparing for the Court claim and to maintain an equal footing by not giving Makers an unfair advantage of being able to pursue an adjudication which is or may be pointless in practical terms. The proposed condition is, it is argued, is designed to enable the court to place the parties on an equal footing to contest the merits of the case in the litigation and to avoid the defendant being placed in a superior and oppressive position in relation to Camden."

[7]I then reviewed the law and practice in relation to the state of execution and the like and referred to His Honour Judge Coulson QC as he then was in the case of Wimbledon Construction Company 2000 v. Derek Vago

[2005] BLR 374

, but I took the view that it would be inappropriate to impose any condition preventing or limiting Makers from pursuing any further adjudication. I set out my particular reasons in Paragraph 46. I say there, amongst other things, that it would at best be an exceptional course for the court on setting aside a judgment to prevent a party from pursuing a statutory right to adjudicate at any time. This was not an exceptional case.

(c) :

"Although the evidence currently before the court shows clearly that Makers is insolvent and will be in no position to pay back any money paid out by Camden pursuant to any ... or adjudication, it is at least possible that other information and circumstances may be applicable at that later stage."

I go on to say:

"Parliament has also altered the commercial balance between employers and contractors. By passing the 1996 Act it has given parties the lever of adjudication. The threat to adjudicate might encourage settlement. An actual adjudication decision might induce a final settlement."

[8]What has happened is that Makers have pursued its outstanding account claim in adjudication. As I have indicated, the adjudicator, against a claim of about £4,000,000, allowed a sum of broadly a third or so of that claim in favour of Makers.

[9]The Claimant, Makers, in this application have made it clear from the start in their Particulars of Claim that it did not seek an unqualified or unconditional judgment. At Paragraph 20 of the Particulars of Claim it says:

"Therefore, the Claimant seeks enforcement of adjudicator's decision and that the sum awarded is paid into court or an escrow account to be released upon agreement of the parties or order of the court."

That indicates at the very least a realistic sensitivity on the part of Makers that, if it was to pursue unconditional enforcement, it might run into some difficulties. Mr. Ghaly, however, says that this was simply by way of gratuitous concession.

[10]What is said, quite rightly, is that, in CPR Part 3.1 the Court, as one of its general powers of management, has the power and discretion at any stage to order money to be paid into court. That is undoubtedly the position. It also has a wide power to order a stay of execution in appropriate circumstances where judgment is given.

[11]Camden has made it clear through its Counsel and otherwise that it does not seek to challenge the decision of the latest adjudicator as unenforceable, that is, it is not saying that it was reached unfairly or in excess of jurisdiction. So, prima facie, it is enforceable. There can be no doubt in those circumstances that there should be judgment for the Claimant. The real issue arises as to whether the Court should exercise its powers under its case management powers under Part 3 or otherwise under its stay of execution powers. If it exercises a stay of execution, should it do so on terms that the money which is the subject matter of the adjudication decision should be paid into court or into an escrow account?

[12]It is accepted, quite properly in commercial terms and on the basis of the evidence before me, in particular in a statement of Mr. O'Donnell, the Director of Finance for Camden, that in broad terms and substantial terms Camden is good for the money. It has, so to speak, a turnover of about £1 billion a year and indeed has substantial capital assets exceeding that figure by a factor of three. So if ultimately there is a judgment in favour of Makers arising out of these proceedings, Camden will be “good for the money”.

[13]I form the view very clearly that this is a case in which a stay of execution should be granted without conditions. It is clear that Makers remains insolvent and would be unable to repay anything if it loses the impending trial. The trial is due in about three weeks' time in relation to the issue of liability. That will determine (and the parties will know relatively shortly after the trial hearing) whether Camden or Makers was in the right in relation to the termination or repudiation as the case may be of the contractual employment of the contractor or the contract. That will inform the Court very much more substantially than it can today as to what is the appropriate course of action.

[14]I will certainly say that Makers should have specific permission to apply to lift the stay following the judgment on the issue of liability, because that may be a very material factor if it turns out that Makers succeed at trial. It is true that in my judgment in March of this year I made it clear (and I do not seek to resile from this) that Parliament in effect must be taken to have known that they were creating a situation by adjudication in which commercial advantage might be given to one party or another in any given case.

[15]Mr. Ghaly says that there is a significant commercial advantage in a condition being imposed or a requirement being made that the money which is the subject matter of the judgment and the adjudication decision should be paid either into court or into an escrow account. He says that either course will or may encourage Camden to seek to resolve the case by way of settlement or compromise. In my judgement, this is one of those cases in which I do not see that that argument is particularly realistic. Camden has taken the relatively unusual step, given its suggested concerns about Makers' insolvency, to issue these proceedings. It has declined to mediate, I understand, notwithstanding some broad hints from the court that such a course could help. It is unnecessary to enquire at all as to the reasons for that, but by inference it must be because it perceives, rightly or wrongly, that there is little or no point in seeking to negotiate.

[16]The disadvantage of the money being paid into court or into an escrow account is that it locks out from Camden £1.3 million or more for some time in circumstances in which Camden as a responsible local authority would otherwise be able to use the money; although it represents a relatively small overall part of its annual turnover, it is money that is in a sense being wasted at least temporarily whilst it is being kept in such an account. There is therefore no point in pragmatic terms for the money being paid into court or into another account. I do not see that any possible advantages arise from this course of action other than a tactical one.

[17]A point has been made, albeit not taken as such, that Camden has not adduced evidence before the court about the current position relating to Makers' solvency or insolvency. It is true that Camden has not adduced any new evidence. On the other hand, I made findings of fact based on evidence before me in March 2009 that Makers was insolvent and without the legally enforceable support of their holding company. It seems to me that it would be incumbent on both parties or either party to put before me any material information which would or might lead the court to believe that that finding made in March was no longer valid. I can certainly see no hint or evidence to the effect that the position has materially changed. Therefore, I am proceeding on the basis that the position has not changed. I say in para.46E of my judgment in March:

"If Makers or those financing Makers wish to take the risk of proceeding to adjudication, they will bear in mind the potential advantages in so doing, and the very real risk that a court could well stay any judgment to enforce any adjudication decision in Makers' favour by reason of insolvency and inability to repay. The court should generally not interfere in the commercial relationship between the parties. The parties should be permitted to pursue such courses as are open to them."

[18]So it cannot be said that Makers in making this application did so without at least a judicial warning that any judgment which it obtained might well be stayed. It seems to me that there is no ground for saying that a condition should be imposed on the stay. So that will be the order. I would, however, repeat what an earlier judge has said, that the parties should even at this eleventh hour seriously consider mediation or some other form of dispute resolution. I will add nothing more than that. The parties are sensible enough to know what the consequences may be if the result goes in a certain direction and mediation has not been effected.

[19]There will be judgement for Makers but there will be a stay of execution until further order. ________