Adjudication & Stays of Execution
Adjudication is designed to be a quicker and cheaper alternative to pursuing the same dispute through the courts. Most construction contracts will contain a right to take a dispute to adjudication because of the statutory entitlement imposed by the Housing Grants, Construction and Regeneration Act 1996 (HGCRA 1996). A decision is usually given within 28 days of a party referring the dispute to an adjudicator and any such decision is supposed to be binding on the parties until it is overturned or declared as unenforceable.
This article looks at what happens after an adjudication decision has been reached and the successful party seeks to enforce that decision where the losing party is ordered to pay, but refuses to do so.
We won, but they won’t pay, so what now?
On most occasions, a party who is unsuccessful in adjudication pays up and everyone moves on. However, there are circumstances where the losing party simply does not accept the adjudicator’s decision, refuses to pay, and decides to challenge it. Unfortunately, an adjudication award lacks the bite of a court judgment handed down by the courts, which is perhaps one of the prices to pay for getting a matter resolved so quickly. This means that a successful party cannot just enforce it like you would a court judgment, for example, by seeking a charging order, an order for sale of an asset, or sending in a bailiff to take control of the losing party’s assets. If you need to enforce it, you therefore have to turn the adjudication decision into a court judgment. You can do this by making an application to enforce the adjudication decision in the courts (through the specialist Technology and Construction Court (the TCC).
A particular procedure has been adopted by the TCC that is designed to expedite the enforcement process. The successful party applies for a summary judgement by showing that the losing party has no reasonable prospect of overturning the adjudication decision at trial and that there is no other reason why the dispute should be heard in a full trial. It has been previously stated by the courts (in AMEC v Thames Water) that because adjudication is designed to be a quick and inexpensive resolution procedure, it would be contrary to public policy if adjudicators’ decisions were not enforced by way of summary judgment. If successful, the party then has a judgment that can be enforced in the same way as a court judgment.
In most cases, for the losing party to try and overturn an adjudication decision, there usually must be a problem with how the adjudicator exercised the powers given to him under the contract in deciding the dispute (an issue with his jurisdiction), or that the decision fell foul of the rules of natural justice in some way.
What is a stay of execution?
Sometimes, even if summary judgment is obtained, the unsuccessful party might still ask the court to grant what is called a ‘stay of execution’. This suspends the obligation for the losing party to pay what they have been ordered to by the adjudicator and prevents the winning party from enforcing their judgment until the stay is lifted, or the dispute has been finally determined by the court.
The usual grounds for the court awarding a stay of execution are:
- the probable inability of the successful party to repay the judgment sum if the adjudication decision was then overturned when the dispute is finally resolved; or
- fraud or a risk of dissipation of the judgment sum that leads the court to believe that the paying party would be unlikely to recover its money if the decision was overturned; or
- if the paying party would suffer severe financial hardship by paying the sums due; or
- there will be an imminent resolution of related court proceedings.
The impact of insolvency
If the successful party is insolvent or in an insolvency process (eg. in liquidation, administration, subject to a winding up petition or in a company voluntary arrangement) upon issuing enforcement proceedings, then it will usually be determined as unable to repay any judgment sum awarded and the adjudication decision will not be enforced.
The court will not grant a stay of execution automatically in any circumstances. It is at the discretion of the court in every case. The above are just the factors the court will consider when deciding whether one should be ordered.
How can I resist an application for a stay of execution?
You may well be thinking “what if the reason I am in financial difficulty is due to the non-payment by the party that I went after in the adjudication?”
This question has been addressed by the courts and offers hope to those who have been left in financial hardship themselves by those who have refused to pay-up previously. If the evidence shows that the successful party’s financial position is due to the other party’s failure to pay-up in the adjudication, the court may not grant a stay. This means that where the other party has caused the financial problems, they cannot just decide not to pay and use this as a basis to apply for a stay of execution. In other words, they have to pay now and argue later, should they decide to issue a claim regarding the enforceability of the adjudication decision.
The purpose of this article is not to persuade anyone against taking their dispute to adjudication. In the majority of cases, the losing party will simply pay up and much of what has been discussed here will not need to be considered. However, it is useful to understand the potential obstacles that may arise should the losing party decide not to pay.
Article submitted by Mark James, partner in the Real Estate group at Coffin Mew.