Introduction

On occasion when a referring party in an adjudication process seeks leave to enforce an adjudicator’s decision, the responding party will argue that due to the referring party’s poor financial standing, it will not be able to repay the amount awarded if it subsequently transpires in arbitration or litigation proceedings that the sum directed to be paid was not in fact due and owing.

The circumstances in which the enforcement of an adjudicator’s decision will be stayed due to the finances of the referring party is an issue which has yet to be resolved by the Irish courts. The issue was touched upon in the latest case from the Irish High Court, McGill Construction Limited v Blue Chip Limited [2024] IEHC 205 and has been recently dealt with in Northern Ireland in the case of Kevin Watson Construction Limited v Radius Homes Limited [2024] NIKB 20.

The Irish case law to date

In Gravity Construction Limited v Total Highway [2021] IEHC 19, Simons J noted that ‘In particular, the propriety of the attempt to stay the enforcement of the adjudicator’s award under the Construction Contracts Act 2013 pending the determination of arbitration proceedings is something that is open for debate given the express wording of section 6(10) of the Construction Contracts Act 2013.’ Section 6(10) states that ‘The decision of the adjudicator shall be binding until the payment dispute is finally settled by the parties or a different decision is reached on the reference of the payment dispute to arbitration or in proceedings initiated in a court in relation to the adjudicator’s decision.’

In the latest case from the Irish High Court, McGill Construction Limited, the responding party raised the issue of the referring party’s finances. However, as the responding party had not adduced any credible evidence to suggest that the referring party was in financial difficulties, Simons J noted that it was ‘not necessary, for the purpose of resolving the present proceedings, to consider the circumstances, if any, in which an application to enforce an adjudicator’s award under the Construction Contracts Act 2013 might be stayed by reference to the inability of the claimant to repay the adjudicator’s award.’

In Aakon Construction Services Limited v Pure Fitout Associated Limited [2021] IEHC 619, in circumstances where there were two adjudications, the responding party in the first adjudication enforcement proceedings sought to have payment in escrow until the determination of any enforcement proceedings in the second adjudication. Again, Simons J refused this request noting that ‘With respect, no evidential basis has been laid which would justify withholding any or all of the payment. No affidavit evidence has been filed which demonstrates that there is a real risk of the applicant company becoming insolvent or being otherwise unable to make a repayment (assuming that an obligation to make a repayment is ultimately established).’

The case law of the Irish courts has shown strong support to the foundational underlying rationale of adjudication which is to safeguard and ensure prompt payment is made to parties to construction contracts in what is colloquially known as the ‘pay now, argue later’ principle. In McGurran Civils ROI Limited v K&J Townmore Construction Limited [2023] IEHC 355, in circumstances where there were two adjudicator’s decisions, there were attempts by the parties to negotiate a schedule of payments that ultimately failed, and enforcement was sought. Simons J observed ‘there is little point in putting the adjudicator under the cosh to produce a decision within a matter of weeks, only for there to be a delay of months, or even years, thereafter in the enforcement of that decision.’ In granting the application to enforce both decisions, the decision of Simons J highlighted the prevailing view that the circumstances in which Irish courts will not enforce an adjudicator’s decision are very limited. Therefore, it is unclear whether the poor financial standing of a referring party would be sufficient reason to warrant a stay on the enforcement of an adjudicator’s decision.

The approach in Northern Ireland

In Kevin Watson Construction Limited the plaintiff sought summary enforcement of an adjudicator’s decision. The defendant did not resist enforcement but argued that the enforcement should be stayed on the grounds that there was ‘a real risk [the referring party] would not be able to pay any sum which may be awarded to the defendant in the true value proceedings.’ McBride J refused the stay on the grounds that ‘the defendant has failed to show that there is a real risk the plaintiff will be unable to repay any future judgment sum.’  In doing so, McBride J reviewed Wimbledon Construction Company 2000 Ltd v Vago [2005] EWHC 1086, Gosvenor London Ltd v Aygun Aluminium UK Ltd [2008] EWCA Civ 2695 and BN Rendering Ltd v Everwarm Ltd [2018] EWHC 2356 and summarised the legal principles related to impecuniosity as follows:

‘46 …

(a) The burden is on the defendant to make out the grounds for a stay. 

(b) The defendant must establish a “real possibility” of obtaining a future award against the plaintiff in the substantive trial. 

(c) The defendant must then establish “the probable inability of the claimant to repay the judgment sum” or as stated in Gosvenor establish there is a “a real risk” of the plaintiff’s inability to pay or as set out at para 52 of Total M&E Services prove there is “a very real risk of future non-payment.” 

(d) The time for assessment of the plaintiff’s financial position is the date when any final determination is likely to be made. 

(e) The court may, not must grant a stay.  

(f) If the plaintiff is in insolvent liquidation, then a stay will usually be granted. 

(g) Even if it is established the plaintiff’s present financial position suggests that it is probable that it would be unable to repay the judgment sum when it fell due that would not usually justify the grant of a stay, if the claimant’s financial position is the same or similar to its financial position at the time that the relevant contract was made; or the claimant’s financial position is due, either wholly, or in significant part, to the defendant’s failure to pay those sums which were awarded by the adjudicator. 

(h) In the exercise of its discretion the court is carrying out a balancing exercise.  In LXB RP (Crown Road) Ltd v Squibb Group Ltd [2016] EWHC 2669 the court stated at para 11:

“A decision to enforce or not is an exercise of the court’s discretion, which must balance a well-known interest in enforcing valid adjudication decisions… against the perceived or actual risk of future injustice if the party subsequently becomes unable to reciprocate in the payment of what it owes under the same contract.” 

(i) As part of this balancing exercise, it can consider the financial information made available by the claimant.  The court can also, however, consider the fact that the party seeking the stay is not entitled to go on a fishing expedition and seek access to confidential commercial information.’

Further, McBride J noted that the standard of evidence required for a stay was that as set out by Gloster J in Holyoake v Candy [2018] Ch 297:

‘There must be a real risk, judged objectively, that a future judgment would not be met… solid evidence will be required to support a conclusion that relief is justified though precisely what this entails in any given case will necessarily vary according to the individual circumstances.’

Conclusions

As indicated in Gravity Construction Limited, the stay of enforcement of an adjudicator’s decision is something that is up for debate given the express wording of s6(10) of the Construction Contracts Act 2013. In the latest judgment from the Irish High Court, McGill Construction Limited, the Court concluded that it was not necessary to deal with the issue of a stay due to the lack of credible evidence regarding the referring party’s financial difficulties. In circumstances where a responding party does adduce evidence showing the poor financial standing of a referring party, it will be interesting to see whether the Irish courts will follow the approach in Northern Ireland as outlined in Kevin Watson Construction Limited.

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Photo of Paul Hughes Paul Hughes

Paul Hughes is a senior associate in A&L Goodbody’s Construction & Engineering group. Paul has extensive experience in construction disputes and acts for employers, contractors and sub-contractors across multiple sectors, including, civil engineering, residential, commercial, educational, refurbishment, repair and maintenance and energy. Paul…

Paul Hughes is a senior associate in A&L Goodbody’s Construction & Engineering group. Paul has extensive experience in construction disputes and acts for employers, contractors and sub-contractors across multiple sectors, including, civil engineering, residential, commercial, educational, refurbishment, repair and maintenance and energy. Paul has expertise in disputes concerning extensions of time, loss and expense, defects, variations, payments, final accounts, true valuations, termination and asbestos. Paul has experience of dealing with disputes arising under the standard forms of contract, including, JCT, NEC, FIDIC, PWC & RIAI and ancillary agreements. Paul holds a PhD (Law) and is a solicitor in both Ireland and England and Wales. He is also a Fellow of the Royal Institution of Chartered Surveyors (FRICS), the Society of Chartered Surveyors Ireland (FSCSI), the Chartered Institution of Civil Engineering Surveyors (FCInstCES) and the Chartered Institution of Arbitrators (FCIArb).

Photo of Andrew Heffernan Andrew Heffernan

Andrew Heffernan is an Associate in A&L Goodbody’s Construction & Engineering Group. Andrew has experience in drafting and negotiating bespoke forms of construction contract as well as the standard forms including the RIAI, JCT and FIDIC suites of contract.

Andrew also provides strategic…

Andrew Heffernan is an Associate in A&L Goodbody’s Construction & Engineering Group. Andrew has experience in drafting and negotiating bespoke forms of construction contract as well as the standard forms including the RIAI, JCT and FIDIC suites of contract.

Andrew also provides strategic mid-stream advice throughout the construction process concerning consultant appointments, sub-contracts and collateral warranties. Andrew acts for both Employers and Funders in the market and advises a broad range of clients across multiple business sectors overlapping with the construction industry, including the residential, office, retail, pharmaceutical and food/beverage sectors.