In August 2018, FTH Ltd (“FTH”) and Varis Developments Limited (“Varis”) entered into a design and build contract (“the Contract”). On 22 October 2019, Varis, the defendant in these enforcement proceedings, issued a Pay Less Notice against FTH’s application showing a Gross Valuation of approximately £3.3m (£317,000.00 after retention and amounts previously certified was deducted). By 25 October 2019, Varis purported to terminate the Contract.

However, on 29 November 2019, Varis also issued a further Pay Less Notice, again showing an amount of £3.3m and an amount due of £90,000.00. FTH successfully obtained two adjudication decision in its favour and Varis was subsequently ordered to pay around £757,000. Following these decisions, Varis entered into a company voluntary arrangement (CVA). The CVA was to last 12 months (with the power to extend) and  the statement of affairs showed liabilities equalling £2.2m (not including the cross-claim). Varis attempted to resist summary enforcement of the adjudication decisions on the basis that it had a cross-claim worth £1.7m. 

Ultimately, the Court refused to enforce the adjudicators’ decisions. The starting point for the Judge was Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd [2000] which states that a company in insolvent liquidation would not generally have an adjudication decision in its favour enforced by way of summary judgment. However, the facts of each matter should be taken into consideration and in this case, Varis was in a CVA not insolvent liquidation.

The Judge notes that the case of Bresco v Lonsdale [2019] did not provide definitive guidance as to how the Court should approach a case where the party seeking to enforce a decision was subject to a CVA. Ultimately the Judge noted that there was jurisdiction to grant summary judgment but the proper approach would be to consider if there was a real risk that summary enforcement may deprive Varis of security for its cross-claim. 

In reaching his decision, there were many factors  considered by the Judge, including:

1    The CVA was not designed to allow the FTH to trade its way to financial stability, rather even if it managed to remain solvent and fulfil its debts the creditors would only recover 56p for every £1. 

2    FTH’s two adjudication claims would not produce nearly enough recovery which was foreshadowed in the CVA. It was therefore analogous to “the straightforward situation where the claiming company is in insolvent liquidation and the liquidator is engaged in the process of recovering what they can in order to make a distribution to creditors,” as per Bresco.

3    Assertions by FTH that it was commencing work and receiving revenue were of minor consideration where there was little evidence of profitable trading. Little weight was also given to the positive statements submitted by the CVA supervisors to the creditors seeing as the CVA supervisors had not considered the defendant’s cross-claim, which if successful, would ultimately result in liquidation for the claimant. 

4    Lastly, the CVA was only for 12 months and there was no valid extension. 

It was therefore concluded by the Judge that Varis had demonstrated there would be a real risk that summary enforcement of the adjudication decision would deprive them of security for their cross-claim. 

Given the above decision, it was not necessary for the Judge to consider Varis’ request for a stay. However, for completeness, the Judge concluded that had summary enforcement been ordered, the stay would have been granted under CPR 83.7(4). FTH would most likely be unable to pay the judgment sum if unsuccessful at trial. The Judge noted that FTH had been “economical” in their provision of their financial information and as per Equitix ESI v Bester Generation [2018] they would normally be required to provide a detailed and reliable financial breakdown. The key point here is that FTH’s financial deterioration was not due to Varis’ failure to pay the adjudication awards. Rather it had steadily declined since the conception of the Contract in 2018 leading to the CVA in 2020. 

Practical Implications

Overall, this case provides a useful reminder about factors that the court will consider should a company seeking summary judgment be in a CVA.