Those who willingly submit contract disputes to adjudication must, save in very exceptional cases, honour the outcome without delay – no ifs, no buts. The High Court resoundingly made that point in a guideline ruling.
The case concerned highway engineering and construction works carried out by a contractor to the order of a local authority. After a dispute developed, the contractor was successful in an adjudication. It subsequently launched proceedings with a view to enforcing the adjudicator's decision and sought summary judgment against the council for a sum in excess of £3 million.
The council conceded that the contractor was entitled to such a judgment. It did not, however, accept that the adjudicator's decision reflected the true state of its account with the contractor and said that it intended to refer the issue of the true value of the works carried out to a further adjudication.
In seeking a stay of execution pending the outcome of that further proposed adjudication, the council asserted that the contractor was insolvent. If ordered to pay the judgment sum straight away, the council argued that it might not be able to recoup money that the contractor might ultimately be directed to repay.
Ruling on the matter, the Court noted that the contractor's most recent filed accounts recorded a trading loss in the relevant year of over £38 million. Its mounting losses had wiped out its asset base, leaving it balance sheet insolvent with a total deficit of over £58 million. Its growing net current liabilities also indicated cashflow pressure.
The contractor was, however, part of a substantial multinational group and its parent company had offered the council a guarantee. The parent company enjoyed a very healthy balance sheet, showing a net asset position of about £1.5 billion, and was plainly balance sheet solvent. It was, the Court found, fanciful to suggest that it would be unable to repay a judgment sum of around £3 million.
In rejecting the council's application, the Court found no merit in its arguments. Its position was more than protected by the parent company's offered guarantee and there were no proper grounds for staying enforcement of the judgment. The council's conduct had, in certain respects, been unreasonable to a high degree and it was ordered to pay the costs of the stay application on the punitive indemnity basis.
