Graham engaged Pioneer under a subcontract (“Subcontract”) to carry out cladding and curtain walling at a site in South Shields.

Two disputes arose under the Subcontract which Pioneer referred to two separate adjudications. The adjudicator awarded Pioneer £222,394 plus interest for the first cladding dispute, but found that they had been overpaid by £29,388 in the second curtain walling dispute, leaving a balance of £193,005 due to Pioneer.

The Subcontract provided that the adjudicator’s fees were to be borne by the referring party and that if the adjudicator made a monetary award in favour of Pioneer it had to be paid into an escrow account.

Graham did not make payment as required and Pioneer commenced enforcement proceedings. Under the Subcontract it appeared that the balance should be paid into the escrow account, but Pioneer argued this was a Tolent clause contrary to the ‘pay now, argue later’ principles of the Housing Grants Construction and Regeneration Act 1996 (“the Act”). Pioneer further argued that the provision regarding the payment of the adjudicator’s fees was a Tolent clause.

Graham resisted enforcement arguing that there should be a stay of execution under the principles of Wimbledon v Vago.

The Judge decided that the Subcontract was contrary to the principles of the Act because:

a) the clause requiring payment into the escrow account was in breach of the policy behind the Act and the Act itself and, relying on Yuanda v WW Gear, was unlawful and therefore unenforceable.

b) The Tolent clause was a provision that could discourage a claiming party from starting an adjudication. Whilst it may not have been as extreme as the example in Yuanda v WW Gear, it was still contrary to the Act and the Scheme for Construction Contracts 1998 (“the Scheme”). Consequently, the parties were each liable for half of the adjudicator's fees.

The court noted that its finding on the escrow clause meant that the Subcontract's adjudication provisions failed and the whole of the adjudication provisions in the Scheme were implied instead. This meant the Tolent clause failed in any event.

However, the Judge refused to enforce the Award and ordered a stay of execution, acknowledging that this was a rare case where the high hurdles in Wimbledon v Vago were satisfied. Applying those principles, the Judge found:

• if the money was paid to Pioneer they would not be in a position to repay it if the arbitration subsequently went against them and there was a considerable amount of evidence to support the conclusion that Pioneer were insolvent.
• although Pioneer’s financial position was the same or similar to when it entered into the Subcontract, the Judge decided that Graham had ‘robustly vetted’ Pioneer as best they could but they had been misled by Pioneer as to their financial stability and so Graham had entered into the Subcontract on a false premise.
• Pioneer’s financial position was not due to Graham’s failure to pay the adjudicator’s award: Pioneer’s financial problems were inherent in its business model.