This was an application by Donald Insall Associates Limited (“the Defendant”) for an order striking out a professional negligence claim brought against it by Kew Holdings Limited (“the Claimant”) or alternatively a stay of the claim pending compliance by the Claimant with a previous court order in the Defendant’s favour.

The Claimant is the registered proprietor of The King’s Observatory in Richmond (“the Property”). The Defendant (a company providing architectural services) was retained by the Claimant in connection with the conversion and refurbishment of the Property to form a private residence. In 2018 disputes arose between the parties concerning the Defendant’s entitlement to unpaid fees. The Defendant referred the dispute to adjudication and obtained an award in its favour. The Claimant failed to pay the sums due, so the Defendant commenced enforcement proceedings. On 5 February 2019, summary judgment was granted to the Defendant in the sum of over £200,000. The Claimant, again, failed to pay the judgment sum. The Defendant commenced Part 8 proceedings for a sale order in respect of the Property to enforce the judgment sum. In March 2020, the Claimant commenced proceedings, claiming damages against the Defendant of approximately £2,000,000 in relation to professional negligence and breach of contract. The allegations included late and inadequate drawings, inadequate advice and overcharging for the Defendant’s services. 

The Defendant argued that the claim had been wrongly commenced without the Claimant having discharged the payment obligation creaed by the adjudicator’s decision and without having complied with the order dated 5 February 2019. They argued that this constituted an abuse of process and was contrary to law. Further, the Defendant submitted that the claim had been commenced with the improper collateral purpose of facilitating the Claimant’s opposition to the Defendant’s claim for a sale order over the Property. 

The Claimant argued that it would be inappropriate for the claim to be struck out and instead submitted that there was no reason why they should not be entitled to pursue their claim once payment of the sums due under the order had been paid.

Strike Out

The court dismissed the Defendant's application to strike out the claim. There was nothing in the Housing Grants, Construction and Regeneration Act 1996 (“the HGCRA” or “the Act”) or the authorities that would render the proceedings unlawful or an abuse of process. The HGCRA provides that an adjudication award is binding only until the dispute is finally determined by legal proceedings, arbitration or by agreement. Therefore, the Act expressly contemplates the commencement of legal proceedings to establish the parties' rights and obligations by way of a final binding determination – this right to determine rights and obligations and seek remedies through bringing proceedings is fundamental. 

The claim was not an abuse of process on the basis that it had been commenced for the improper collateral purpose of facilitating the Claimant’s opposition to the Defendant’s order for sale. The Claimant’s complaints about the Defendant’s professional services were raised prior to the adjudication and enforcement proceedings and there was no evidence that the complaints were disingenuous. 

The court was satisfied that the Claimant’s commencement of proceedings without honouring the adjudication award and the judgment was in flagrant disregard of the “pay now, argue later” regime of the HGCRA and amounted to unreasonable and oppressive behaviour. Nevertheless, to strike out the claim would be contrary to that regime since it would deprive the Claimant of the ability to “argue later” and would be too draconian. Accordingly, the proceedings were stayed, pending payment by the Claimant of the outstanding judgment sum. 

Security for Costs

The Claimant was ordered to pay the sum of £600,000 as security for the Defendant's costs. The Claimant was a company registered in the Cayman Islands, the Property was its sole asset from which it received no income, and its filed tax returns showed significant and continuing losses (satisfying conditions (a) and (c) of CPR 25.13(2)). It would also be just in all the circumstances to make an order for security. The Claimant had demonstrated that it was prepared to disregard orders of the court requiring it to make payments to the Defendant, and there was a real risk that the Claimant would be unable to pay the Defendant’s costs if ordered to do so. It would not be reasonable or proportionate to require the Defendant to defend the claim without security for its costs, and there was no real risk that ordering security would stifle the claim – the claim was being funded by a man of very substantial means who could obtain a loan or provide a cash backed bank bond. 

Neither the Property nor the Claimant’s offer of a personal guarantee provided adequate security. Although there was sufficient equity in the Property for the Claimant to eventually meet its liabilities, the Claimant would not be able to meet any costs order within the usual time period (14-28 days). The proposed guarantor and his identified assets were outside the jurisdiction (in Hong Kong) and there was no indication as to how readily these assets could be realised. 

Comment

This case demonstrates the possible impact on litigation proceedings where a party fails to comply with an earlier court order enforcing an adjudicator’s decision. In this case, the court granted a stay of proceedings pending compliance with the order, and required the Claimant to pay a substantial amount as security for costs. It was considered too draconian to strike out the claim, even though the Claimant had refused to comply with the order previously.