JEFFREY v STEENE

JEFFREY v STEENE

The proceedings brought by the contractor to enforce the adjudicator’s award against the employer should be allowed to continue despite the employer entering into an individual voluntary arrangement but any judgment should not to be enforced without the court’s permission
 
JEFFREY v STEENE
TECHNOLOGY AND CONSTRUCTION COURT 
O’FARRELL J
30 AUGUST 2018

The proceedings brought by the contractor to enforce the adjudicator’s award against the employer should be allowed to continue despite the employer entering into an individual voluntary arrangement but any judgment should not to be enforced without the court’s permission

The contractor referred a dispute with the employer over its final account to adjudication and was awarded a specified sum. The employer failed to pay and the contractor took enforcement proceedings. The employer acknowledged service of the claim form indicating an intention to defend and to contest the adjudicator’s jurisdiction. Directions were given and a hearing date allocated for the contractor’s summary judgment application. A day before it was due to serve its evidence, the employer notified the contractor that he was proposing to enter into an individual voluntary arrangement. The employer proposed to distribute its available assets to unsecured creditors (including the contractor) whose debts it agreed and decided were due. The employer also obtained an interim county court order under section 252 of the Insolvency Act 1986 preventing any execution or other legal proceedings being commenced or continued without the court’s permission.

The contractor applied for such permission under the section 252 in order to enforce the adjudicator’s award. The employer argued that permission should be refused on the grounds that: (i) The adjudicator had decided the claim and what was due and there was therefore no need for any further proceedings (ii) The contractor had been aware of the employer’s financial position and the medical condition that was the reason for it and (iii) If the contractor was granted summary judgment, he would be in a better position than the other unsecured creditors as the proposal was yet to be approved.

The court held that it should exercise its discretion to allow the proceedings to continue. Whilst the contractor was identified as a creditor of the employer, there was no clear acceptance that the sum awarded was due. The adjudicator’s award had been obtained and the enforcement commenced before notice was given of the proposed individual voluntary arrangement and before the county court proceedings brought by the employer. The contractor had incurred costs in the enforcement proceedings and the sum awarded was still a matter of dispute unless and until summary judgment was ordered. Summary judgment would not make the contractor a secured creditor or give it an unfair advantage over other creditors.

THE FULL TEXT OF THE JUDGMENT OF O’FARRELL J

1. This is an application by the claimant, Mr Raymond Jeffrey, trading as Premier Construction Services pursuant to section 252 of the Insolvency Act 1986 that he be permitted to continue with his action against Mr David Steene, the defendant, despite the existence of an interim order of the Luton court, dated 16 August 2018, restricting the court to permit the enforcement and/or continuation of any legal proceedings pending consideration of the IVA proceedings started by Mr Steene.

2. The background to this matter is that in March 2013 the claimant building contractor entered into a contract with the defendant for refurbishment works to be carried out at 29 Barnham Avenue, Elstree, Hertfordshire. The contract did not contain any adjudication provision and, therefore, the Scheme for Construction Contracts (England and Wales) Regulations 1998 SI 1998/649 (as amended) applied so as to give rise to the statutory scheme.

3. In November 2014, the claimant issued what was a revised final account which the defendant disputed. That dispute was referred to adjudication by a notice dated 15 May 2018. Mr Jason Farnell was appointed by the Royal Institute of Chartered Surveyors as the adjudicator.

4. By a decision, dated 18 June 2018, the adjudicator found that the defendant was required to pay the sum of £109,859.09 in respect of the final accounts. The defendant was further required to pay the adjudication costs in the sum of £100 interest on the principal sum and the adjudicator’s fees and expenses. The defendant failed to pay the sums awarded by the adjudicator or the adjudicator’s fees and, therefore, on about 20 July 2018, adjudication enforcement proceedings were commenced by the claimant.

5. On 27 July 2018, Mr Justice Fraser issued directions in this matter, including an order that any further evidence should be served by the defendant by 16 August 2018, and fixed an oral hearing for the summary judgment application of 12 September 2018. On 3 August 2018, the defendant submitted an acknowledgement of service in which it was indicated that he intended to defend all of the claim and intended to contest jurisdiction.

6. On 15 August 2018, that is one day before the defendant’s evidence was due to be filed, an email was sent by Mr Goldstein who had been instructed as the nominee for Mr Steene’s individual voluntary arrangement. Mr Goldstein stated in the email to Mr Stephenson of the claimant’s solicitors that Mr Steene, the defendant, had made an application to Luton County Court for an interim order which would effectively mean that none of Mr Steene’s creditors could petition for his bankruptcy or commence or continue any other legal proceedings against Mr Steene except with the permission of the court until his creditors had properly considered his IVA proposal.

7. In response, Mr Stephenson asked Mr Goldstein for confirmation that the court had been fully informed of these proceedings, namely the adjudication enforcement proceedings before the High Court, and the imminence of the hearing date. He did not receive a direct answer to that request. Although it has been said that the court was aware of the claimant’s claim in these proceedings, it is not clear what evidence was put before the Luton County Court, what details, if any, the Luton County Court was told about these proceedings or the timetable leading up to the hearing on 12 September.

8. On 16 August 2018, the Luton County Court made an interim order pursuant to section 252 of the Insolvency Act 1986 which included a provision that no other proceedings and no execution or other legal process may be commenced or continued and no distress may be levied against the debtor, that is the defendant in this case, or his property except with the permission of the court.

9. The application before me today is an application by the claimant to lift the prohibition on these proceedings continuing despite the interim order of the Luton County Court.

10. Section 252 of the Insolvency Act 1986 provides:

“(1) In the circumstances specified below, the court may in the case of a debtor (being an individual) make an interim order under this section.

(2) An interim order has the effect that, during the period for which it is in force:

(b) No other proceedings, and no execution or other legal process, may be commenced or continued and no distress may be levied against the debtor or his property except with the leave of the court”.

11. My attention has been very helpfully drawn to the decision of Mr Justice Coulson, as he then was, in the case of Selby Hall v Van Der Heiden [2010] EWHC 537 TCC. In the Selby Hall decision, Mr Justice Coulson was asked to consider and determine whether an application to lift the prohibition made by way of an interim order could be made to and determined by another court. In that particular case, an interim order was made by the Swindon County Court and Mr Justice Coulson was asked to consider whether the TCC could grant the claimant permission to continue with proceedings leading to the TCC trial.

12. The learned judge held that he was entitled to exercise the jurisdiction under section 252 of the Insolvency Act and, if he considered it appropriate, give leave to the claimants to continue with the proceedings in that case. His reasons for that are set out in paragraphs 12 through to 23 of the judgment and I do not repeat them here. I am satisfied on the basis of that decision that I have jurisdiction to exercise the court’s discretion to permit these proceeding to go ahead. The issue, therefore, is whether the court should exercise its discretion in the circumstances of this case.

13. Mr Stephenson has quite properly drawn to my attention an email received from the defendant’s current solicitors, a Mr John Cooper of Wilkes, who has set out grounds on which he considers that this court should not permit these proceedings to continue. The first is that the adjudicator has already made a decision on the merits and therefore there is no need for this matter to proceed further. Secondly, the claimant is fully aware of the defendant’s current financial position and the reasons for it. Thirdly, if the court were to allow this matter to proceed to summary judgment, the claimant would gain an unfair opportunity, as he put it, to steal a march on the defendant’s other creditors in circumstances where the creditors as a whole have yet to approve or reject the IVA proposal.

14. The IVA proposal has now been sent to Mr Steene’s creditors and it is proposed that there be a creditors’ meeting on 10 September 2018. The proposal explains that the defendant, who is qualified as a solicitor, developed Caldeck Finer Syndrome in July 2010 and that disability has led to his current financial difficulties. A partnership in which he was involved was terminated as a result of his illness, the resulting litigation went badly for the defendant and, as a result, many of his assets were used up.

15. He had incorporated a company for the purchase and letting of residential properties. Unfortunately, his disability meant that he was unable to continue that business. Although many of those properties have been sold off, a few still remain and will be sold so as to provide some assets in the IVA.

16. The defendant unfortunately also entered into tax mitigation schemes which have unravelled as a result of challenges by HMRC. Therefore the unhappy position of the defendant is that he owes money to HMRC in the sum of about £4.5 million, together with a number of other creditors. It should be noted that the claimant in this case is listed as one of the unsecured creditors to the tune of £137,551 which relates to the sums claimed in the adjudication.

17. However, as has been pointed out by Mr Stephenson, paragraph 8.3 of the IVA proposal states that the defendant proposes that distributions be made to unsecured creditors from the funds coming into the hands of the supervisor on such terms as to the magnitude and time that he thinks fit, having regard to the level of funds available and the extent to which the claims of the unsecured creditors have been agreed. Therefore, although the claimant is identified as an unsecured creditor, there is, as yet, no clear acceptance that the sum awarded by the adjudicator is, in fact, a sum due or agreed by the defendant. Therefore, there is no certainty that it will be ranked as an agreed sum for the purposes of distribution.

18. I also have in mind the following matters. First of all, the adjudication decision was obtained in the claimant’s favour based on the adjudicator’s valuation of the sums due in relation to the disputed final account. The decision was obtained prior to the Luton County Court proceedings. These proceedings were started before the IVA notice was given or the interim order of the Luton County Court obtained. The claimant has had to incur the costs of starting these proceedings and of producing its evidence. The claimant contends that it its entitled to the adjudication sum and that is still a matter that is in dispute, at least based on the acknowledgement of service filed by the defendant.

19. Any judgment that might be obtained by the claimant, on summary judgment or in default of the service of any evidence by the defendant, would result in the sum claimed being an undisputed sum, but would not turn the claimant from an unsecured to a secured creditor. Therefore, the claimant would not obtain any unfair advantage over the other unsecured judgment only and not to extend to enforcement without further permission of the court.

20. In conclusion, I am satisfied that the court has jurisdiction to make the order that is sought by a claimant and that this would be an appropriate case in which to permit the claimant to continue with the summary judgment application.

21. Therefore, I will make the order that has been sought by the claimant subject to the slight amendment as indicated:

(i) Leave is given pursuant to section 252 of the Insolvency Act 1986 to continue with this action and, to that extent, the Luton County Court number 128 of 2018, dated 16 August 2018, shall not apply to these proceedings.

(ii) Unless the defendant file and serve, by 4 pm on Thursday, 6 September, its evidence in defence of this action as originally directed by paragraph 3(a) of the order of Mr Justice Fraser, dated 27 July 2018, the claimant be at liberty to enter judgment in the sum claimed plus interest accrued and to file a bill of costs for summary assessment.

(iii) The claimant does not have leave to enforce any judgment without permission of the court.

(iv) The costs of this application be costs in the case.