REUTERS | David Mdzinarishvili

Cash flow tensions in adjudication enforcement

Much has been written about Fraser J’s judgment in Gosvenor London Ltd v Aygun Aluminium UK Ltd, with both Tim Sampson and Abdul Jinadu discussing various issues on this blog.

What I thought was interesting about the judgment was how it illustrates the tension between adjudication and the principle embodied within it of keeping cash flowing, and how a successful challenge on enforcement may stop it. Ironically, this is often at a time when a party most needs cash to keep flowing. 

Gosvenor v Aygun

Gosvenor v Aygun is just the latest case to illustrate issues with cash flow and, it is arguable, the facts are a little unusual. The adjudicator awarded Gosvenor some £554,000 and then Aygun refused to pay. When the matter came before the court on enforcement, Aygun raised for the first time a number of fraud allegations. Airing these allegations in this way attracted Fraser J’s disapproval in the enforcement proceedings, leading him to reject the evidence as part of the summary judgment application. He said they could and should have been raised in the adjudication itself.

This isn’t the first time that fraud allegations have been raised, and the judgment sets out a number of cases where clear principles have been established (and applied). What is clear is that Fraser J felt that Gosvenor’s behaviour wasn’t above board and that there was a risk that, if Aygun paid, it would never see the money again if the adjudicator’s decision was reversed in subsequent proceedings. For this reason, he granted a stay of the enforcement proceedings (and came up with a new principle to add to the Wimbledon v Vago principles in the process).

Meadway v Wildacre 

This isn’t the first time this year the court has stopped cash flowing. Back in January, I wrote about Meadway Private Clients (Liongate) Ltd v Wildacre Ltd, where the dispute centred on the non-payment of two interim applications for payment. That non-payment led to Meadway applying for an injunction to freeze Wildacre’s assets. When the matter came before Fraser J, he continued the injunction on terms that required Meadway to commence an adjudication on its final account dispute, and to pay £50,000 into court.

Equitix v Bester 

More recently, in Equitix ESI CHP (Wrexham) Ltd v Bester Generacion UK LtdCoulson J granted a partial stay and, again cash was stopped from flowing.

In deciding to grant a partial stay, Coulson J considered Edwards-Stuart J’s judgment in Galliford Try v Estura, where the question was whether it was “fair” to enforce the adjudicator’s decision in full, and concluded that it wasn’t. Not only had unsatisfactory financial information been provided by the SPV, it had been “much too economical with [that] information”. Further, it was an SPV with no P (it was not continuing with the project), and would probably soon be wound up. This meant the contractor faced the real risk of overpaying and never being repaid.

As I said at the time:

“At the time of Galliford Try v EsturaI said that although Edwards-Stuart J may think a partial stay was ‘appropriate only in rare cases’, I could see the arguments being written by paying parties. I wondered how rare these exceptional cases would prove to be. Since then, I have seen manifest injustice arguments run in some smash and grab adjudications, which I’ve always deferred to the courts to deal with rather than accepting it as a ground not to pay. However, the floodgates did not open quite as far as I anticipated.”

Perhaps these cases are all exceptional and highlight how a stay is only granted in rare cases. After all, cash flow is the lifeblood of the construction industry and it shouldn’t be stopped from flowing apart from in exceptional circumstances. In addition, what is clear is that the TCC judges are alive and receptive to arguments regarding behaviour that they consider to be unacceptable, such that a party’s conduct/behaviour will be subject to scrutiny when the judges are administering justice. As these cases demonstrate, you have been warned!

MCMS Ltd Matt Molloy

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