Tate Building Services Limited v BM McHugh Limited (TCC - 11.7.2014)
TATE BUILDING SERVICES LTD v BM McHUGH LIMITED
Technology and Construction Court
11th July 2014
The sub-contractor informed the contractor during the course of the works that it could not afford to fund the works and entered into negotiations with the contractor regarding how the works would continue. Apparently unknown to the contractor, the sub-contractor entered into a creditors’ voluntary arrangement just before the sub-contract works were substantially completed. The sub-contractor submitted a claim document to the contractor on which it relied in the adjudication it began. The adjudicator concluded that the sub-contractor was entitled to be paid £268,868 plus VAT and interest. The contractor paid £33,669 of the sum awarded, leaving £235,199 outstanding.
Edwards-Stuart J held that (i) The sub-contractor should have summary judgment in the sum awarded by the adjudicator of £268,868 (ii) Enforcement of that sum should be stayed to the extent that it exceeded £150,000 and (iii) The contractor was to pay £75,000 of that £150,000 into court.
There was a high or significant risk that if by the time the defendant's action to overturn the adjudicator’s decision was brought to trial, which might be not for another twelve months, the claimant probably would not be in a position to pay the full amount of the adjudicator's award. Whilst the claimant’s financial position had improved substantially and whilst the claimant would be able to pay something, that position had not improved so substantially that, it would be able to repay the entire sum within that period of time if it was ordered to do so.
It was astonishing that the sub-contractor was in a position to raise some very large invoices immediately after entering into the creditors’ voluntary arrangement. There was no very satisfactory explanation of this sudden turnaround in the fortunes of the sub-contractor’s business. In addition a recent VAT return showed a total value of sales of £1.2 million, which figure was in line with the invoices put before the court by the sub-contractor. The sudden turnaround of the sub-contractor's fortune so soon after the CVA was, to say the least, surprising and the fact that it was prepared to lie quite blatantly in a letter to the contractor in order to obtain a payment of £100,000 was also deeply troubling. The information put forward by the sub-contractor should therefore be viewed with a certain degree of scepticism in the absence of any independent evidence from an accountant or even the supervisor of the CVA.