Makers UK Ltd ("Makers") was employed under a contract in writing by The Mayor & Burgesses of London Borough of Camden ("Camden") to carry out extensive refurbishment works for a contract sum of £4,337,511.17 million. Issues arose between the parties over variations and delays to the works. Camden purported to determine Makers' employment under the contract. Makers disputed this determination, arguing Camden had repudiated the contract. In January 2008, Makers referred the dispute to adjudication. The adjudicator's decision was issued in March 2008. Amongst his findings, the adjudicator decided Camden had repudiated the contract by incorrectly serving notice of determination on Makers and Makers had not repudiated the Contract. Camden challenged enforcement of this adjudicator's decision by Makers on jurisdictional and bias grounds.

Camden commenced proceedings in November 2008, to establish that it lawfully terminated Makers' employment under the contract and to recover over £1 million. Makers filed an acknowledgment of service. Camden entered judgment in default on the same day that Makers' defence and counterclaim were served. Makers considered that they had served in accordance with an unwritten agreement between the solicitors acting for the parties. Camden disputed the agreement.

The latest company accounts of Makers, for the year ending 31/12/2007, showed a loss of £8,541,000. Makers' holding company, Keller Group plc, had announced its decision to withdraw from Makers' business once existing contracts had been completed. In contrast, when the parties had entered into their contract, Makers was profitable.

Separately from the court proceedings, Camden feared that Makers would start an adjudication to recover money it alleged was due to it. If the adjudicator awarded money to Makers, Camden submitted that if that adjudicator's decision was subsequently overturned by the court, it would not be able to seek the return of the money, because Makers was insolvent.

Camden agreed that judgment should be set aside but only if the following conditions were imposed:-

1 That Makers were prevented from adjudicating any further covering issues addressed in the proceedings; and
2 That Makers provided security for costs of defending the counterclaim.

The following four issues were considered by the Court:

1 What is the nature and scope of the jurisdiction to impose conditions upon setting aside a default judgment?
2 Is Makers insolvent and based on the evidence before the Court will it probably be unable to repay any sum awarded to it by an adjudicator in a future adjudication in respect of its quantum claim against Camden and/or was there reason to believe that it would be unable to pay Camden's costs of defending Camden's intended counterclaim in the litigation if ordered to do so?
3 As the Court was bound to conclude that Makers has a real prospect of successfully defending the claim, was there some other good reason why judgment in default should be set aside? and
4 Should the Court exercise its discretion to set aside the default judgment, upon the conditions requested by Camden?

Mr Justice Akenhead held:-

1 While it was clear from CPR 13 that the court had discretion to impose conditions upon setting aside a judgment where the defendant had a real prospect of defending the claim, it had to be mindful of its duty to act justly between the parties, and a Court should not impose conditions intended merely to punish a defendant.
2 It was clear that Makers were in a difficult financial position. They were not taking on new work, its holding company had withdrawn its support and the accounts showed a dire financial situation. This evidence would normally be sufficient to satisfy a Court that Makers would not be able to pay Camden's costs of a successful counterclaim, in the event it was successful.
3 There was no ‘other good reason' for the Court to refuse to set aside the judgement in default. The Court acknowledged that Camden had rightfully conceded this point as the first adjudicator decided on a relatively reasoned basis that Camden had repudiated the Contract.
4 The Court would not impose a condition that restricted Makers' right to bring an adjudication. A party to a construction contract has a statutory right to adjudicate upon any dispute at any time.

"A concomitant of the right to adjudicate at any time is that this gives a party a commercial advantage and lever. Thus it is open and permissible to a party such as Makers in this case to threaten adjudication against the other party. It is a commercial lever for two reasons, the first being that the other party knows that it faces the risk of a decision against it which, if made fairly and within jurisdiction by the adjudicator, will be enforced by the Court. Secondly, the other party knows that in most cases it will incur costs of defending the adjudication proceedings which will be irrecoverable as the adjudicator is only rarely given discretion to award such costs. Parliament must be taken to have known that such a commercial advantage and lever was being given. Parliament was certainly aware that the passing of the 1996 Act would alter the balance as between employers and contractors so far as cash flow was concerned."

There would have to be exceptional circumstances to fetter the right to adjudicate, and the present circumstances were not exceptional. The Court decided that if Makers won a considerable sum on quantum adjudication, Camden would be likely to succeed on a stay of enforcement application, due to its dire financial situation. However, to order security for the costs of the counterclaim would be in fact punishing Makers as that counterclaim was not an issue incurring costs at the present time. If the trial on liability was won by Makers, then it may be appropriate to order security at that point but not before.

The Judge declined to impose any condition preventing or limiting Makers from pursuing any further adjudication. His reasons were:

"(a) The failure to serve a Defence within the permitted time, without securing an extension of time was an oversight on the part of Makers or its Solicitors. It was thus purely fortuitous that Camden was able to enter judgment in default. But for that, the Court would have had no power to prevent Makers from pursuing an adjudication concurrently with the Court proceedings.
(b) It will at best be an exceptional course for the Court on setting aside a judgment to prevent a party from pursuing a statutory right to adjudicate at any time.
(c) This is not an exceptional case. Although the evidence currently before the Court shows clearly that Makers is insolvent and would be in no position to pay back any money paid out by Camden pursuant to any future adjudication, it is at least possible that other information and circumstances may be applicable at that later stage.
(d) Parliament has altered the commercial balance as between employers and contractors by passing the 1996 Act. It has given parties the lever of adjudication. The threat to adjudicate might encourage settlement; an actual adjudication decision might induce a final settlement.
(e) If Makers or those financing Makers wish to take the risk of proceeding to adjudication, they will bear in mind the potential advantages in so doing and the very real risk that a Court could well stay any judgment to enforce any adjudication decision in Makers' favour by reason of insolvency and inability to repay. The Court should generally not interfere in the commercial relationship between the parties. The parties should be permitted to pursue such courses as are open to them."

Finally the Judge had to decide on the costs of the application. Makers submitted that Camden should pay their costs because it ‘won' the application. Camden submitted that costs should be ‘in the case', or at the very worst, Makers' costs should be ‘in the case'. The Judge decided that Camden should pay just under half of Makers' costs due to i) Makers' failure to issue their Defence in time, without which this application wouldn't have been necessary; ii) Makers did not ‘win' all of the issues in dispute; iii) The Court had considered the insolvency situation of Makers which should give the parties guidance in future proceedings and consequently save time and expense; iv) Camden acted reasonably in defending the application; and v) a costs judge, in assessing Maker's bill of costs, would have reduced the amount in any event.