(Judgment link: https://www.bailii.org/ew/cases/EWHC/TCC/2020/1862.html)
This judgment related to a court application by Insall seeking 3 potential court orders in respect of a £2 million damages claim Kew commenced against Insall in March 2020. The Judge, sitting in the Technology and Construction Court (“TCC”), was Mrs. Justice O'Farrell DBE. The Judge ordered Kew’s proceedings be stayed pending Kew’s payment of the sums it had been previously ordered to pay, by the same Judge, on 5 February 2019 (enforcing an adjudicator's decision in Insall’s favour). Kew were also ordered to provide £600,000 as security for costs. The Judge, however, dismissed Insall’s application to strike out Kew’s claim against it.
Kew Holdings Ltd (“Kew”) is an SPV, registered in the Cayman Islands. In 2010 Kew engaged Donald Insall Associates Ltd (“Insall”), to provide architectural services related to the refurbishment and conversion of Kew’s property, The King's Observatory, Richmond (the “Property”) into a private residence. In 2018 a dispute arose regarding Insall’s unpaid fees. Insall referred the dispute to Adjudication. Insall obtained an Adjudicator’s Decision dated 28 November 2018 (the “Decision”) in its favour for the sum of £202,509. Kew did not pay the Decision. Consequently, Insall commenced enforcement proceedings in the TCC.
On 5 February 2019, the TCC (Mrs. Justice O'Farrell DBE) found in Insall’s favour granting summary judgment enforcing the Decision, plus interest, fees and assessed costs (5 February 2019 judgment link: https://www.bailii.org/ew/cases/EWHC/TCC/2019/384.html). Kew was ordered to pay by 19 February 2019. In March 2019 Kew’s permission to appeal was declined by the Court of Appeal. Kew still did not pay the judgment. Accordingly Insall took steps to enforce the judgment sum, first obtaining a charging order and in September 2019, Insall commenced proceedings against Kew seeking an order to sell the Property. The Judgment notes that these separate Insall proceedings against Kew are still ongoing, and are being contested by Kew, who asserts it has a £2 million claim against Insall for professional negligence and breach of Contract.
March 2020: Kew commences its own legal proceedings against Insall
Despite Kew’s non-payment noted above, in March 2020 Kew started its own legal proceeding in the TCC against Insall (“Kew’s Legal Proceedings”), claiming approximately £2 million in damages. The Judgment notes that Kew’s allegations against Insall include “late and inadequate drawings, inadequate advice and overcharging”. In response to Kew’s Legal Proceedings, as noted at Judgment paragraphs 1 and 12, on 27 April 2020 Insall issued an application (3 applications were noted) seeking the following orders from the Court:
- That Kew’s claim should be struck out unless Kew pay Insall the sums ordered by the Court on 5 February 2019 within 7 days
- Alternatively, to stay the proceeding pending Kew’s payment to Insall of the sums ordered by the Court on 5 February 2019 within 7 days
- Further or alternatively Insall sought a security for costs order requiring Kew to pay the sum of £700,000 into Court, or such other sum as the court deemed as adequate security for Insall’s costs
As noted earlier Insall’s applications above were heard by the same Judge, Mrs. Justice O'Farrell DBE, who’s earlier judgment dated 5 February 2019 was being referred to in Insall’s applications 1 and 2 above. The Judge considered each of Insall’s applications and delivered her judgment on 15 July 2020. At Judgment paragraphs 15 and 16 it was noted that Kew contested Insall’s applications to strike out and for security for costs, however, it did not oppose Insall’s application to stay the proceedings.
Insall’s applications for a stay of Kew’s Legal Proceedings and for Security for Costs
The Judge ordered that there should be a stay on the terms set out in the Judgment and also that £600,000 as security for the Insall’s costs be paid into Court by Kew within 14 days.
Insall’s application to strike out Kew’s Legal Proceedings
The application to strike out was not granted. The parties’ pleadings and the Judges reasons for not doing so are set out in full in the Judgment. In short, Insall argued that Kew’s failure to pay the adjudicator's Decision and failure to comply with the Court's Order dated 5 February 2019 meant that Kew’s proceedings were an abuse of process and contrary to law. It argued 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”, for which it relied on S&T (UK) Ltd v Grove Development Ltd  EWCA Civ 2448 (CA) and M Davenport Builders Ltd v Greer  EWHC 318 (TCC).
Whilst the Judge accepted, as noted at Judgment paragraph 22, that: “It is clear from the above authorities that the Claimant 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” nevertheless the Judge dismissed Insall’s strike out application, for a number of reasons, as set out in the Judgment, including, for example:
1. The issues in the above quoted authorities did not arise and could be distinguished here because the court had already enforced the outstanding adjudicator’s Decision by giving summary judgment in Insall’s favour on 5 February 2019.
2. Whilst finding that “the commencement of these proceedings without honouring the adjudication award and the judgment, in flagrant disregard of the "pay now, argue later" regime of the HGCRA, amounts to unreasonable and oppressive behaviour”, nevertheless, the Judge also accepted Kew’s submissions that the striking out of Kew’s claim, at this stage, would be too draconian, noting that whilst Insall is “entitled to the protection afforded by a stay of proceedings unless and until the judgment has been satisfied” at this stage, she saw no reason why Kew should not be allowed to pursue its claims once it has paid the outstanding judgment sum.
3. In respect of the above, the Judge appeared to consider that striking out Kew’s claim, at this stage, was draconian and contrary to Kew’s fundamental right to bring legal proceedings to “argue later”. She held that there “is nothing in the HGCRA or in the above authorities that would render the current proceedings unlawful or an abuse of process as submitted by the Defendant”. She also noted that whilst the adjudication provisions of the Housing Grants, Construction & Regeneration Act 1996 (“HGCRA 1996 Act”) are subordinate to its payment provisions, the right to bring legal proceedings is not and is more fundamental. The HGCRA 1996 expressly provides for “the commencement of legal proceedings to establish the parties’ rights and obligations by way of a final binding determination” (see S 108 (3) of the HGCRA 1996 Act) and access to justice and the right to bring legal proceedings are a fundamental rights “guaranteed by Magna Carta and is enshrined in the Human Rights Act 1996”.
As noted above, Judgment paragraph 22 appears to affirm again the Court of Appeal's decision in Grove v S&T, and is a further message from the Court that a paying party must pay any unsatisfied Adjudicator’s Decision arising from a smash and grab adjudication, before starting a true value adjudication in respect of the same disputed payment application.
In terms of seeking to avoid Grove v S&T by commencing legal proceedings, whilst, on these specific facts, the Court was prepared to grant a stay to prevent these particular legal proceedings from continuing until earlier payments related to an unpaid adjudicator’s decision were satisfied by the paying party (Kew), nevertheless it must be remembered that: 1) the stay application was not contested by Kew; and, 2) a Court order dated 5 February 2019 was already in place.
Ultimately, we do not know from the Judgment if the Judge would have ordered a stay if it had actually been contested by Kew (which it was not). However, on a potentially positive note, the Judge did confirm (see numbered paragraph 2 above) that Kew’s behaviour and conduct amounted to “unreasonable and oppressive behaviour”. Further, earlier at Judgment paragraph 14, she referred to Anglo-Swiss Holdings Ltd v Packman Lucas Ltd  EWHC 3212 (TCC), quoting Mr Justice Akenhead’s stated “exceptional circumstances” principles that may justify the Court granting a stay of legal proceedings where there has been a refusal to honour or satisfy a previous adjudication decision; which, inter alia, stated “(iv) Those circumstances include bad faith and where the claimant has acted or is acting particularly oppressively or unreasonably.” However, as also noted therein too, the granting of a stay is at the court’s discretion and is to be “used sparingly and in exceptional circumstances”. Accordingly, there is no guarantee or certainty that the approach of awarding a stay as occurred in this case will be followed in later ones. It was, however, made clear, on these facts, that the Judge was not prepared to strike out Kew’s claim and dismissed this particular application.
In summary, each case turns on its own unique facts, and it remains to be seen in future cases whether there will be a trend in paying parties seeking to avoid their payment obligations, as noted in S&T v Grove, by commencing legal proceedings, and if so, whether or not this case will be confined to its own facts, or if the Courts will be prepared to develop this area further and not allow new court proceedings to proceed unless and until an earlier Adjudicator’s decision has been paid in full first. We will have to watch this space.
Matthew Davies, Director, Blue Sky ADR Ltd
Date 12 August 2020
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