Pioneer Cladding Ltd v JOhn Graham Construction Ltd (TCC - 4.10.2013)
There should be a stay of execution on the judgment summary enforcing the adjudicator's decision by which the contractor was directed to pay the sub-contractor a specified sum pending the outcome of the arbitration begun by the contractor.
4 October, 2013
PIONEER CLADDING LTD v JOHN GRAHAM CONSTRUCTION LTD
Technology and Construction Court
4th October 2013
The adjudicator awarded the sub-contractor a specified sum. The contractor applied for a stay of the judgment obtained by the sub-contractor to enforce the adjudicator’s decision on the ground of the sub-contractor’s probable inability to repay the judgment sum in the event of the decision being overturned in the arbitration begun by the contractor.
The contractor submitted that the sub-contractor misled the contractor into thinking that it was a much more substantial and successful entity than it actually was on an analysis of the financial information that sub-contractor provided to the contractor before the sub-contract was entered into with the results that (i) The sub-contract was entered into on a false premise and (ii) The sub-contractor could not now rely on its bleak financial position at that time to avoid the stay of execution. The sub-contractor submitted that the contractor could not now complain that its financial position was unstable when the sub-contract was entered into because the contractor knew that it was unstable at that time.
Coulson J accepted the contractor’s submissions, rejected that of the sub-contractor and granted a stay of execution pending the outcome of the arbitration begun by the contractor in respect of the disputes referred.
Two factors established by the evidence regarding the sub-contractor’s financial position in favour of granting a stay were that (i) It was probable that the sub-contractor would be unable to repay the sum awarded if that was the outcome of the ongoing arbitration and (ii) The sub-contractor’s financial position was not due wholly or in significant part to the contractor’s failure to pay the sum awarded.
The third factor which in isolation would have meant that a stay should not have been granted was that the sub-contractor’s current financial position was the same or similar to that when the sub-contract was entered into. However, whilst the evidence did establish this third factor, the sub-contractor (i) created the impression at the time the sub-contractor was entered into that it was a substantial and financially stable company and (ii) deliberately concealed from the contractor at that time the facts that it was not making any significant profit and that it did not have the cash reserves it suggested to ensure that it was awarded the sub-contract. It was therefore appropriate to grant a stay in the light of this factor.