REUTERS | Heinz-Peter Bader

TCC refuses to strike out claim where smash and grab decision not paid

Summer felt like it had come early in May, but much of June and July served to remind us that we don’t live in the Mediterranean. Although summer has now most certainly arrived, the judges in the TCC are still hard at it. A recent judgment that caught my eye was O’Farrell J’s in Kew Holdings Ltd v Donald Insall Associates Ltd. In it, she ordered a stay of proceedings pending payment of an adjudicator’s decision. She also ordered the claimant to provide £600,000 security for costs, but rejected the defendant’s strike out application.

I’ve seen a few articles on the judgment, many focusing on the stay pending payment. However, given that the parties agreed to the stay, I think the more interesting issue is the strike out application and that is what I’m looking at today.

Kew Holdings Ltd v Donald Insall Associates Ltd

This was a dispute over the fees payable to Donald Insall Associates (DIA) for its architectural services in respect of works to a property called the King’s Observatory, Richmond, which was to be converted from commercial to residential use. Think Downton Abbey, but on a slightly smaller scale.

The project had progressed during the period 2010 to 2017 before the fee dispute in 2018, which culminated in an adjudication and then enforcement proceedings in the TCC in early 2019. It was the same judge back then. She enforced the adjudicator’s decision, finding that the parties’ contract was a construction contract within the meaning of section 107 of the Construction Act 1996. The judgment was dated 5 February 2019 and I wrote about it at the time, although I was looking at the jurisdictional/ reservation of rights issue back then.

Following that judgment, Kew failed to pay and DIA took steps to enforce the judgment sum, including obtaining a charging order over the Observatory for £270,000, and starting proceedings to force its sale. Kew’s position is that it has a claim for professional negligence and breach of contract against DIA and, in March 2020, issued proceedings claiming some £2 million in damages. Its allegations include late and inadequate drawings, inadequate advice and overcharging for its services.

Those proceedings led to DIA’s application for a strike out, alternatively a stay of proceedings pending payment of the February 2019 judgment sum. It also applied for security for costs.

Applications to stay and security for costs

As the stay application was not opposed, there is little to say about that. Similarly, the security for costs application turned on the facts (as they always do) and I have little to add there either.

Application to strike out

A key plank of DIA’s case was that the claim had been:

“… wrongly commenced without having discharged the payment required by the adjudicator’s decision and without having complied with the Court’s Order dated 5 February 2019.”

It relied on S&T (UK) Ltd v Grove Developments Ltd and M Davenport Builders Ltd v Greer and another as authority for the proposition that a paying party is not entitled to commence a fresh claim seeking the determination of the parties’ true entitlements unless and until it has first discharged its obligation to pay the amounts determined as payable in a prior adjudication. Therefore, Kew’s claim was contrary to law and an abuse of process.

O’Farrell J reviewed these authorities and confirmed that Kew:

“… would not be entitled to start a further adjudication in respect of the Defendant’s fees (on substantive issues not yet determined) without paying the outstanding adjudication award. Further, the Claimant would not be entitled to rely on any subsequent ‘true value’ adjudication as a defence to the enforcement of the outstanding adjudication award.”

As an aside, this provides further support from the TCC for the principles established in S&T v Grove and M Davenport Builders, albeit I remain of the view that some clarification is needed on the arguable conflict between these cases, as I have discussed before.

Turning back to this case, O’Farrell J pointed out that the issues that arose in S&T v Grove and M Davenport Builders did not arise here because the court had already enforced the outstanding smash and grab decision (its order dated 5 February 2019). She noted that there is nothing in the Construction Act 1996 or the authorities that would render the current proceedings unlawful or an abuse of process, because the right to have a dispute finally resolved by legal proceedings or arbitration is expressly enshrined in the Construction Act 1996 (section 108(3)), and such a right is not subordinate to the payment provisions of the Act in the same manner as the adjudication provisions (S&T v Grove).

O’Farrell J concluded on this point that:

“The right of access to swift justice was guaranteed by Magna Carta and is enshrined in the Human Rights Act 1996, which gives effect to the Convention rights, including Article 6, the right to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law. A party’s right to access to justice is not unfettered but clear words would be required to make it subordinate to the payment provisions in the HCGRA.”

O’Farrell J was satisfied that Kew was in deliberate and persistent breach of the 5 February 2019 court order to pay the smash and grab adjudication sum and that the commencement of the proceedings against DIA was:

“… in flagrant disregard of the ‘pay now, argue later’ regime of the HGCRA, amounts to unreasonable and oppressive behaviour.”

However, she accepted Kew’s submission that striking out the claim would be too draconian and that it should be entitled to pursue its claim once it has paid the outstanding judgment sum and the stay has been lifted.

My take aways

It is clear to me that O’Farrell J was not prepared to extend the principles set out in S&T v Grove to prevent a party from commencing court proceedings in circumstances where a smash and grab decision had not been paid as that would be inconsistent with a party’s right to have the dispute finally determined.

We’ll never know whether she would have granted the stay as that had been agreed by the parties, but given that one of the “exceptional circumstances” for granting stays set out by Akenhead J in Anglo-Swiss Holdings Ltd v Packman Lucas Ltd was that a party had acted “particularly oppressively or unreasonably” and the judge’s finding that Kew had acted in this manner, I strongly suspect she would have done.

Some have suggested that this judgment could be seen as the TCC “interfering” in the “argue later” litigation that follows adjudication to ensure parties are paid, but I’m not so sure because:

  • As I’ve already said, the stay was agreed by the parties and therefore, regardless of the conclusions we can draw from Kew’s “unreasonable and oppressive behaviour”,  I don’t think that this case can provide authority for the principle that court proceedings for a final determination of parties’ true entitlements will be stayed where a party has not paid the sums due following smash and grab adjudication.
  • The “argue later” principle is preceded by the requirement to “pay now”. If a party has not paid up, then I have some difficulty in accepting that the TCC could be interfering in “argue later” litigation.

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