Kevythalli Design Ltd v Ice Associates Ltd [2009] EWHC 3676 (TCC)

Case No PA12[2009] EWHC 3676 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Venue Royal Courts of JusticeDate Wednesday, 16 December 2009
Strand
London WC2A 2LL
Before
MR JUSTICE AKENHEAD
Between
KEVYTHALLI DESIGN LIMITEDRespondentICE ASSOCIATES LIMITEDAppellant
Kate Powell (instructed by Messrs Reynolds Porter Chamberlain LLP) appeared for ClaimantRonan Hanna (instructed by Hegarty LLP) appeared for Defendant
Judgment

<U><B>Mr Justice Akenhead</B></U>

[1]The background to this case is that the Claimant is an architecture practice, and the defendant is a developer of ice rinks. Issues arose between the parties about, amongst other things, the payment of fees and so it was that the Claimant, the architects, brought proceedings in the Central London County Court issued on 5 March 2008, seeking a substantive sum of £104,250. That related to invoices which had been submitted in March and September 2007. All or at least some of the work done by the claimant for the defendant related to the design and construction of an ice rink by the defendant for Cardiff City Council.[2]The Defendant submitted on the standard county court form on 1 April 2008 a defence and counterclaim which showed what might fairly be described as a relatively vestigial indication of its defence and counterclaim. Essentially, what was indicated was that there was a set-off and counterclaim said to arise out of the Claimant's alleged failure, and I quote, "to perform a number of its duties and roles in relation to its offer/contract". There was a failure to complete the works as proposed by the Claimant and accepted by the Defendant. The works that were completed, it was said, were substantially inaccurate incurring major design changes during construction and causing the final buildings to be fundamentally flawed for its usage. Other failings included work of detailed design to areas such as the roof.[3]There was no indication with any particularity as to what the quantum of the Counterclaim would be, but attached to that document was a page headed, "Reasoning for making a Counterclaim" which apparently related to two projects, one at Altrincham and the other at Cardiff and it was indicated, in relation to the former project, that currently withheld was a sum of £900,000 by the Defendant's client in respect of which the Defendant held the client responsible and so far as Cardiff was concerned, it was indicated that the costs of correcting fundamental dimensioning errors and that the remedying of inaccurate and incomplete design details caused substantive delays on site, incurring site costs and liquidated damages claims from the client, although with regard to Cardiff the Defendant was not in a position to finalise accounts with the costs they estimated at around £250,000.[4]Unsurprisingly, the parties agreed a few months later an order for directions by consent and the key order, so far as this case is concerned, was the order of 4 September 2008:
"The Defendant do provide a draft amended defence and counterclaim by 4.00pm on Friday, 19 September 2008, failing which the Defendant's Defence and Counterclaim should be struck out and the Claimant shall be at liberty to enter judgment on its claim in the sum of £104,250 plus interest of £29,570 and costs to be assessed on the standard basis if not agreed."
There are consequential orders that were made with a view to having a trial of the matter in the Central London County Court Technology and Construction Division by "Judge alone" some time presumably shortly after 27 April 2009.[5]At about 4.25pm, and I make no findings about the precise time, on 19 September, and thus at least 25 minutes late so far as the order was concerned, the Defendant served its draft amended Defence and Counterclaim. It is not referred to as being amended but it is clearly amended from what had been contained on the standard form. Again, I will not go into the detail about this but certainly some more information is provided about the various claims; suffice it to say there appeared to be issues between the parties as to whether the Defence and Counterclaim, as provided on that day, was a properly pleaded document. I certainly make no comments about that.[6]The Claimant applied for judgment in the light of the fact that the pleading had not been served in accordance with the terms of the order of the court. His Honour Judge Brian Knight QC on 24 October 2008 gave judgment for the Claimant in the requisite sums and ordered that the Defendant pay the Claimant's costs to be assessed on the standard basis.[7]Initially the Defendant sought from the County Court an order setting aside the judgment; the application was an invitation to the court to set aside the judgment for the Claimant and to enable the Defendant to amend its previous Defence and Counterclaim in accordance with the pleading of fact. That was accompanied by a witness statement from the Defendant's solicitors.[8]Again, His Honour Judge Knight QC, having heard both parties, dismissed the Defendant's application, in effect to set aside the judgment in default, doing that on 21 November 2008, although the order is drawn up on 16 February 2009. It was at that stage that the Defendant applied for permission to appeal.[9]Following an oral hearing, on 29 July 2009Eady J dismissed the application for permission to appeal having heard Counsel on both sides. Meanwhile, in this chronology, on 9 September 2009 the Defendant had commenced adjudication proceedings against the Council of the City and County of Cardiff, the party with whom the Defendant had entered into an agreement. It is recorded in the ensuing adjudication decision as being the design and construction of the new temporary ice rink at the Cardiff International Sports Village, the contract signed being for a little over £2.4 million.The adjudicator decided on 9 September 2009 that Cardiff would pay the Defendant the sum of £25,871.96 which included VAT and interest and that also the Defendant should pay his fees albeit that Cardiff City Council should reimburse the Defendant for that.[10]On 24 September 2009 the Claimant in this action, having obviously heard that such an award had been obtained, issued an application for a third party debt order in the Central London County Court. I am assuming that that was served on the Defendant and the third party, the Cardiff City Council. On 28 September 2009, District Judge Silverman in the Central London County Court made an interim third party debt order which is in these terms:
"(1) The application [that is for a final third party debt order] will be heard at 10.30am on 20 November 2009 at Central London County Court when a judge will decide whether a final third party debt order should be made. (2) Until that hearing the third party must not, unless the court orders otherwise, pay to the judgment debtor or to any other person any sum of money due or accruing due by the third party judgment debtor except for any part of that sum which exceeds the total shown below."
The total shown below is £143,844.05.[11]Thereafter on 21 October 2009 Aikens LJ had considered in writing a renewed application for permission to appeal against the judgments of His Honour Judge Brian Knight QC and by his order, although dated 21 August seems to be stamped 6 November 2009 granted permission to appeal, and the reasons are said to be this:
"This is a potential second appeal. No important point of principle or practice is involved, however it is reasonably arguable that there is another compelling reason why there should be an appeal, namely that the decisions of the courts below erred in approach are plainly wrong. However, as the question of PTA and the appeal are so closely bound up it is right the two should be dealt with in an oral hearing together."
He said that he has granted permission to appeal. What he has effectively ordered rather is that the application for permission to appeal is to be adjourned to an oral hearing and if permission to appeal is granted the appeal is to be dealt with at the same time. He continues on the face of this order to say this, "Stay of execution granted pending oral hearing". The time estimate is said to be two hours including judgment and that expedition is required.[12]Since then, the parties have been told that the appeal is likely to come on in early March 2010. The permission to appeal has not been granted but there is to be an oral hearing on whether there should be permission to appeal which will no doubt be attended by both parties.[13]Meanwhile the hearing fixed for the application for the interim third party debt order to be converted into a final third party debt order was due for hearing on 20 November. Relatively shortly before that the Defendant submitted a witness statement from Mr Coppinger of the Defendant's new solicitors, which identified the argument that a final third party debt order should not be granted, grounds for the third party debt were disputed and there would be prejudice to third party creditors of the Defendant.[14]At Paragraph 16 to 18 he says this:
"I have spoken with Steven Rattle, the sole director of the defendant, regarding the defendant's present financial situation. He advises me that the company is no longer trading and that it continues to exist only until such time as it recovers sums due to it from the claimant, amongst others. I am also advised by Mr Rattle that the defendant has a number of unsecured creditors, these include HMRC to whom approximately £18,000 is due in respect of VAT, and other secured creditors who are due around £45,000 in total. Once the adjudicator's decision was made and it became apparent that some cash would be received by the defendant it advised those unsecured creditors that payments would be made imminently. Cheques were drawn up in their favour but were not posted because of the interim third party debt order obtained by the claimant. Without the money payable by the third party under the adjudicator's decision the defendant will continue to be unable to pay these creditors. I therefore consider that the third party debt order sought by the claimant would lead to a preference of one creditor (the claimant) over all the defendant's other unsecured creditors. The order would therefore be inequitable having regard to the position of those other creditors."
He asks not only that a final third party debt order should not be made but the interim order should be discharged.[15]That was met by a witness statement from Mr Lee of the Claimant's solicitors who broadly made it clear that they opposed what the Defendant was saying on a number of grounds, which I do not need to set out, but, so far as prejudice to third party creditors was concerned, Mr Lee averts to the various facts which are said to arise which indicated that the defendant was continuing to trade because it was presently in negotiations:
"...about the extension of the lease of the temporary ice rink at Cardiff International Sports Village, which is the subject of the underlying proceedings. It is clear from the correspondence that whilst the third party [that is Cardiff] has offered the sum of £158,979 per annum (for each of the two years of the lease extension) the claimant is, in fact, seeking somewhere between £200,000 and £225,000."
He attaches correspondence which is said to support that. I certainly make no findings about that but has not been challenged in later witness statements.[16]The parties exchanged skeleton arguments for the hearing on 20 November 2009 and when they arrived at court the District Judge indicated that he was not in the position to hear the argument, unsurprisingly because it seems that he had listed a large number of applications that day and the most he could spare, I am told, was five minutes. He proposed to adjourn it to the first available date, and, upon being told it was likely to last the best part of three hours, he adjourned it until a date in February 2009.[17]That has led to the current application which was issued in the High Court on 27 November 2009. The order being sought on the application is a transfer to the High Court from the Central London County Court and listing the Defendant's application for transfer and the Claimant's application for a final third party debt order for a hearing as soon as possible. It was said that the reasons were the financial value and complexity of the underlying issues justified transfer to the High Court, the balance of convenience and fairness to enable the transfer to the High Court and by reason of the adjourned hearing on 20 November 2009 the defendant is unable to enforce an adjudicator's award.[18]That was supported by a second witness statement of Mr Coppinger which goes into the reasons why it is appropriate for the interim order to be discharged and for no final order to be made and also why a transfer should be made to the High Court. Mr Lee responded in a witness statement dated 11 December 2009 making it clear that the application was opposed, thus we get to where we do today.[19]It is quite clear under CPR Part 30 that the High Court has a discretion, having regard to certain specific criteria, to order proceedings to be transferred from the County Court into the High Court and there is no suggestion that the Court does not have that power. But the criteria for a transfer order is set out in CPR 30.3 and the matters to which the court must have regard are listed in rule 2 of 30.3 as including, amongst others:
"(a) the financial value of the claim and the amount in dispute, if different; (b) whether it would be more convenient or fair for hearings (including the trial) to be held in some other court; (c) the availability of a judge specialising in the type of claim in question and (e) the importance of the outcome of the claim to the public in general."
Those seem to be the primary matters which are arguable relevant to this case.[20]It is difficult to deal with the application to transfer without reference to the underlying matters which have to be addressed as to whether, in effect, the interim third party debt order should be discharged and whether or not the final order should, in effect, be made today by this court, or not made as the case may be, if this matter were transferred.[21]I start from the following position. At the moment, rightly or wrongly, there is a judgment in favour of the Claimant given by the County Court. There has been a judicial process by which that judgment was obtained and, indeed, was sought to be set aside. The status quo therefore at the moment is that there is a judgment in favour of the claimant. That judgment may or may not be set aside by the Court of Appeal. I am certainly not going to venture into the territory of the Court of Appeal as to whether the appeal should be allowed or dismissed.[22]The second point is that it was legitimate and permitted by the rules for the Claimant to seek steps to execute or to enforce that judgment even pending an application for permission to appeal.[23]Thirdly, given the stay of execution which has been imposed by the Court of Appeal by Aikens LJ, the overwhelming probability in practice is that the third party debt order, whether interim or final, will not be enforced pending the outcome of the Court of Appeal's decision. Obviously, if no final order is made, then it would not be enforceable against Cardiff City Council. If a final order was made, and it is not necessary for me to decide whether it can or should be made, in practice I cannot see that it would be proper to make it final or enforceable pending the resolution of the Court of Appeal decision which could be within several or no more than a few weeks of when the final order application is currently listed.[24]The reason for that is obvious, namelyly that, if the Court of Appeal grants permission to appeal and allows the appeal, then for a saving of a few weeks it would be almost inconceivable that it would be appropriate for there to be an enforceable final third party debt order against Cardiff City Council. I say almost because I leave it open to the parties to pursue an order for a final third party debt order before the resolution by the Court of Appeal.[25]The next issue is whether or not the ordering of a stay of execution by any court, and in this case particularly by the Court of Appeal pending the oral hearing of an application for permission to appeal, operates in effect so as to require the discharge of any orders which may have been made legitimately by the court of the kind that were made in relation to the enforcement or execution of the judgment.[26]I form the clear view that a stay of execution by the Court of Appeal does not operate, in effect, so as to require the discharge, as such, of any orders of the court which have been made by the Court up to that date. What it simply means is that those orders which may have been made before the stay was imposed simply are no longer enforceable for the time being and no actual execution can be imposed or effected following the Court of Appeal's imposition of a stay.[27]There is a respectable argument put forward by Counsel for the Defendant, based on a particular authority, to the effect that once a stay of execution is granted by the Court of Appeal the judgment debt is not to be treated as a debt presently due and payable. In effect it is said that once a stay is granted the judgment creditor ceases to be a judgment creditor. In my view that argument is simply, albeit respectable, wrong. The argument is based upon a case in 1971 in the Court of Appeal <U>Berliner Industriebank Aktiengesellschaftv Jost</U> [1971] 2 All ER 1513. The case in fact was not directly on point so far as the current case is concerned and it concerned a debtor who had borrowed from a German bank a large sum of money. He had been made bankrupt in Germany. The effect of the German bankruptcy was that his existing property vested in a trustee and became immune from execution. There came a time following the discharge of the bankruptcy that he either had or had acquired property in England and the German bank sought to execute against that property. The primary issue in the case was limitation because the original debt had become due some 11 or 12 years before the application for execution was brought in this country.[28]Salmon LJ who read a combined judgment for himself and Phillimore LJ said this at page 1518: "We turn finally to the more difficult questions raised in respect of English law. Counsel for the creditor submits that so long as a foreign judgment is subject to a stay or its equivalent the English courts will not regard it as final and conclusive. Accordingly he argues that under English Law the foreign judgment only became effective and time only began to run in England from July 1964 when the bankruptcy was terminated and the creditor was free to levy execution. He relies chiefly on a dictum of Russell LJ in <U>Colt Industries Inc v Sarlie (No 2)</U> suggesting that if a judgment in New York, was subject to a stay, an English Court would not treat the judgment as final and conclusive so long as the stay continued. Counsel for the creditor summarised the point by saying that since there was a stay under s 14 of the ordinance that could be no implied assumption of a promise to pay. Likewise the money could not with certainty be said to be due and payable. We cannot accept this argument. In our view Russell LJ was contemplating only the normal case in which after judgment a general stay of execution is granted pending the hearing of an appeal. We can well understand that in such a case the judgment under appeal would not be regarded as final and conclusive; nor as establishing an implied promise to pay, let alone the existence of a debt presently due and payable.[29]It is those last two or three sentences upon which Mr Hanna for the Defendant relies. In my view, those dicta, which are not directly on point in any event, do not establish the proposition that once a stay is granted the debt is not to be treated as a debt presently due and payable.[30]The reason is fairly obvious. If the Court of Appeal decides that the appeal should be dismissed, it will effectively confirm that there was a debt due and payable, at least from the date of the lower court judgment, if not before. If, however, it finds that the appeal should be allowed, then it will be held that there is no judgment debt because there will be no judgment because it will have been set aside.[31]One should not build into a relatively simple expression such as "stay of execution" an intellectual exegesis which the words were probably not intended to create. All it really means is that execution, whatever form it takes, is to be suspended. If, for instance, execution has already taken place, in part or in full, it does not mean to say that really the execution is in some way set aside. Presumably the third party interim debt order was not, as such, to be set aside. It is just that it cannot be enforced. Of course, there is nothing in the third party debt order, the interim order, which requires or enables the third party actually to pay. There is a negative in the interim order which simply says that the third party must not pay it out to someone else, pending the resolution of whether or not there should be a final order.[32]There is not even any execution or enforcement pending the final third party debt order. Mr Hanna's primary point falls to the ground. There is some support and he has properly qualified that by reference to the glossary at the back of volume one of the Civil Procedure book, which identifies, in broad terms, the meaning of the word "stay":
"A stay imposes a halt on proceedings, apart from taking any steps allowed by the rules or the terms of the stay. Proceedings can be continued if a stay is lifted."
That, in the context of what the Court of Appeal is saying, seems broadly to be correct. It is a halt on proceedings. It does not involve the wholesale setting aside of orders which are not directly the subject matter of the appeal which have been made, at least from an administrative point of view, legitimately by the court.[33]If, on that basis, there can be no setting aside of the interim order as such, the only issue then remains as to whether or not, as a matter of convenience, expedition and justice, the court should allow a transfer to the High Court, which is primarily to enable the High Court to deal with the matter before the end of the year and well before when the County Court could deal with the final order, in practice whether this Court could deal with the final order today. It is wholly unnecessary and would be only a theoretical exercise for the Court to deal with the issue of whether the final order should be made.[34]The reasoning is that which I said before, which is that it is all academic. I cannot see that, if this matter were transferred into this Court and I dealt with it today, I would make a final order or make a final order that was enforceable or enabled execution to take place unless and until the Court of Appeal have resolved matters. It is not, as matters go, a very long period to wait, subject to one matter, which I will come back to.[35]This has only arisen because, firstly, the Defendant did not oppose the interim order; secondly, because the Defendant only decided to oppose the application for a final order relatively shortly before what turned out to be the abortive hearing on 20 November 2009 and because what eventually happened was that because of that, the Court could not hear the matter on 20 November. To some extent the Defendant is the author of its own misfortune so far as this is concerned. I do not criticise the Defendant as such for doing this. This is a very understandable accident. But matters, so far as the final order, have cosnequently been put off. But of course the Defendant says the problem is that it cannot pay its other creditors unless and until a new order is discharged. But, as I have indicated, an interim order will not be discharged and should not be discharged.[36]But Mr Hanna prays in aid the very real prejudice which his clients, in a sense, will suffer because of not having the money available from the adjudication decision from Cardiff to pay off its other creditors. It has put no real evidence before the court that it is in any financial difficulties. It may be in financial difficulties but it did not put forward any evidence. It says that it has ceased trading. There is evidence, which has not been challenged, before the Court that at least in terms of seeking to secure Cardiff as a tenant and paying a not insignificant amount of rent per year, there is still some activity going on which might be described as trading activity, even if it is not the business of actually constructing ice rinks, upon which it was hitherto engaged.[37]Secondly, the Defendant has put in no evidence about the state of its finances. For instance, I would have expected a balance sheet of some sort to be put in to the Court to indicate that it was seriously prejudiced by not having the adjudication decision monies paid to it. It is quite clear that it has a capital interest in the property which it is seeking to let to Cardiff Council and that must have a significant capital value if it is capable of generating the sort of rent which is either being offered or sought by Cardiff and the defendant in the correspondence. Therefore this is not a case in which, as a matter of convenience, expedition and speed it has actually been established that it is appropriate to have an expedited hearing in a court such as this, which could theoretically hear the application today. It is therefore not urgent at all, and, having regard to the matters which I am required to have regard to in CPR 30.3(2), the financial value of the claim and the amount in dispute, at the moment the status quo is that there is simply a judgment in favour of the Claimant. There is no separate set of proceedings which has been instituted in relation to the counterclaims and therefore the financial value of the claim is relatively low, just over £100,000.[38]I do not think it has been established that it would be convenient or fair for the hearings to take place in this Court, for the reasons I have indicated. Of course, the judges in the Central London County Court have experience of TCC matters, as well as the judges in this court. So there is no particular advantage in the matter being dealt with here rather than in the Central London County Court.[39]An added factor is that which I have already indicated, which is the reality that matters are going to have to await the outcome of the Court of Appeal decision. Therefore if the Court of Appeal decided that the appeal should be allowed there would be no question of any third-party debt order. If they refuse the appeal, then the third-party debt order is, no doubt, a sensible and viable option which will remain open to the Claimant. If it turns out that the Defendant's concern and misgivings about the lack of trading activity and so on are borne out and unfortunately the company is forced, for instance, to go into liquidation, then there would be a normal set-off and other provisions which would apply in bankruptcy or liquidation. In a sense, the Claimant itself will be subject to that risk but also if, in truth, there is not a significant financial deficit, then there will be no particular prejudice either way.[40]Therefore I am going to dismiss the application to transfer for those reasons. I order £3,000 costs payable by the Defendant to the Claimant payable within 14 days.