"Manifestly Unjust" – JRT Developments Ltd v TW Dixon (Developments) Limited [2020]

A stay of execution of summary judgment proceedings enforcing an adjudicator's decision will rarely be given. One example of where it may be given is where a court can be persuaded that the Claimant will be unable to repay the sum awarded if the effect of the adjudicator's decision is reversed in subsequent arbitration or legal proceedings.

The Technology & Construction Court's recent decision JRT Developments Ltd ("JRT") v TW Dixon (Developments) Limited ("TWD") [2020] has reinforced the decision in Galliford Try v Estura [2015] EWHC 412 (TCC), which provided scope, albeit limited, for a Defendant to argue that there should be a stay because it will cause "manifest injustice" if not.

Background

Significantly, the parties to this dispute are related. According to the case reports, Mr Jonathon Woodcock, the owner of JRT is the nephew of the sole shareholders of TWD, Mr & Mrs Dixon. Mr & Mrs Dixon set up TWD with the assistance of JRT solely for the purposes of developing 14 new homes in Shropshire. Mr & Mrs Dixon are elderly, and have no previous experience in the construction industry. The correspondence between the parties during the contract was informal, and for all intents and purposes the relationship between the parties was more like a joint venture, rather than employer and contractor in an arm's length construction contract.

The Parties entered into a JCT Minor Works contract with design 2011 edition and a "Commercial Agreement", both dated 22 June 2016, for the design and construction of the new homes. Funding for the project was provided by the Homes and Communities Agency (HCA), and was arranged by JRT for TWD.

At no point during the three-year duration of the contract did the parties operate the payment procedure contained within the JCT Contract.

The relationship between the parties soured as a result of cost overruns and delays. The contract was terminated by JRT on 13 June 2019, with both parties alleging that the other was in repudiatory breach of contract. Thereafter, the parties engaged in correspondence in an attempt to resolve the financial matters that existed between them.

JRT contended that it was due payment of £952,578.97. On 4 November 2019 JRT issued what it argued was, and what the adjudicator found was, a Payment Notice under clause 4.5.2 of the JCT Contract. The Payment Notice made no reference to the Commercial Agreement, nor did it refer to the JCT Contract or the payment provisions therein.

Unaware of the significance of the Payment Notice, TWD failed to issue a Pay Less Notice in accordance with the JCT Contract. On 14 November 2019, the first day in which it could do so, JRT referred the matter to adjudication. The adjudicator held that JRT's Payment Notice was a valid payment notice pursuant to Clause 4.5.2 of the JCT Contract Conditions, and that therefore TWD owed the amount demanded in it, having failed to serve a Pay Less Notice.

Proceedings

On 10 March 2020 JRT issued proceedings and sought summary judgment to enforce the adjudicator's decision. In turn, TWD commenced Part 8 proceedings for a declaration that the payment notice was invalid, as it included sums that JRT was not entitled to under the contract, and alternatively as it was the third notice issued by JRT for sums allegedly due at the relevant due date.

At the enforcement hearing, it was conceded by TWD that JRT was entitled to summary on the adjudication award. However, it sought a stay of enforcement pursuant to CPR 83.7 (4) on the basis that there were "special circumstances" being:

The probable inability of JRT to repay the judgment sum at the end of the substantive trial, relying on the case of Wimbledon Construction Company 200 Ltd v Vago [2005] EWHC 1086 TCC; and
The risk of manifest injustice if no stay is granted, as a result of TWD's inability to pay and all the circumstances of the case, relying on the case of Galliford Try Building Ltd v Estura [2015] EWHC 412 (TCC).

JRT opposed the application for a stay in enforcement. It argued that the test in Wimbledon was not met, and that in order for the court to find there would be "manifest injustice", the circumstances would have to be exceptional.

Inability to repay the judgment sum

Considering the guidance provided by HHJ Coulson in the case of Wimbledon, HHJ Watson was satisfied that:

It was highly probable that JRT would be unable to repay the judgment sum if ordered to do so after the trial of the Part 7 proceedings;
The financial position of JRT was substantially different from when the JCT Contract was entered into (22 June 2016); and
JRT's financial position was not either wholly or in significant part due to TWD's failure to pay the sums awarded in the adjudication.

Manifestly unjust?

In deciding if manifest injustice would be caused if no stay was granted, HHJ Watson considered the decision in Galliford Try Building Ltd v Estura [2015] EWHC 412 (TCC), in which Justice Edwards-Stuart partially stayed execution of judgment on the ground that enforcement of the full judgment would cause manifest injustice to the Defendant, as it would be unable to pay the award in full pending a final valuation of the works.

HHJ Watson granted the stay, having regard to the "exceptional circumstances" of the case, which HHJ Watson noted "do appear to me to be relevant to the fairness of enforcing the judgment sum":

TWD, if forced to make payment of the adjudication award, would immediately be insolvent as it would be unable to pay its debts as they fall due. It would resultantly be forced into liquidation. Accordingly, it was clear that if judgment was not stayed, TWD would recover little, if any, of the judgment sum following trial.
The "highly unusual" funding arrangements in the matter, whereby the relationship between the parties was not that of employer and contractor at arm's length. The Commercial Agreement provided that JRT was to cover TWD's overheads during the course of the project, and JRT also paid the wages of TWD's manager – Mr Neville. The arrangement was consistent with JRT funding TWD (and not the other way round).
It was only after JRT terminated the contract that it demanded money from TWD in excess of funding received from HCA. Throughout the course of the project both parties ignored the payment provisions of the JCT Contract. It was only after termination that JRT sought to rely on the contractual payment provisions, clearly intending to trigger a referral to adjudication and an award of the full sum claimed. It was clear that neither TWD nor TWD's manager, Mr Neville, understood the effect of the payment notice.
It was likely that at least substantial elements of JRT's claim for payment were not properly due at the time it issued the payment notice. The court referred to JRT's balance sheet, which did not include the judgment sum but a figure of £665k for TWD's debt, which suggested that it did not expect to recover the full amount of the payment notice following trial. Accordingly, it was at least likely that following trial there would be an order for a significant repayment to TWD.

It is interesting to see the TCC taking account of other issues beyond a Defendant's inability to pay when considering manifest injustice. Of course, each case will turn on its own facts, but this case demonstrates that the English courts remain prepared to exercise their discretion and order a stay if they can be satisfied that a Claimant party is seeking to take advantage of the adjudication process in situations where circumstances would result in manifest unfairness. Plainly, the circumstances will have to be 'exceptional'. However, a party at the wrong end of an adjudicator's decision will wish to explore all the circumstances to see whether it might meet that test.

The development of the law on manifest unfairness and the operation of stays in those cases have taken place before the English Courts. The option of a stay of enforcement is not, however, available in the courts in Scotland. It therefore remains to be seen how the Scottish courts would deal with such arguments.