BECK INTERIORS LTD V RUSSO
The guarantor had real prospects of successfully defending the contractors claim against him under the guarantee for the sum which the adjudicator decided should be paid by the employer to the contractor
29 July, 2009
Technology and Construction Court
29 July 2009
The guarantor was the 90% shareholder and sole director of the employer. The contractor obtained an adjudicator's decision for the employer to pay the contractor a specified sum. The employer became insolvent with the result that the contractor sought to enforce the decision against the guarantor who had guaranteed all payments due or to become due to the contract under the contract. The contractor applied for summary judgment against the guarantor who advanced various defences which he contended had realistic prospects at any trial. One of the defences was that he was not bound by the adjudicator's decision. It is well established law that general words in a guarantee which guarantee the due performance of all the obligations of the debtor do not of themselves have the effect of the guarantor being bound by an arbitration award in an arbitration between the debtor and the creditor, even where the arbitration award arose out of an arbitration clause in the contract containing the debtor’s obligations guaranteed by the surety. The guarantor submitted that this legal principle also applies to adjudication.
Ramsey J agreed with the guarantor. Whilst the contractor sought to draw a distinction between a temporarily binding adjudication decision and an arbitration award, the principle derived from the cases concerned with arbitration awards is equally applicable to any dispute resolution method which involves a decision on what sum was due or what damages were payable. The underlying rationale for that principle was that a party might neglect to defend itself properly, make admissions or otherwise conduct the case in the dispute resolution differently from the guarantor. To overcome that difficulty, what was required was an agreement by the guarantor to be bound by the decision of an adjudicator, arbitrator or the court as between the parties to the contract or other means under which underlying dispute arose. The contractor submitted that this principle did not apply because the guarantor was a witness in the adjudication which he conducted on behalf of the employer. Whether the contractor was correct depended on whether, on the facts, the guarantor became bound in his personal capacity when acting in the adjudication. This issue could not, however, be determined on a summary judgment application on the evidence before the court.