Welcome to our latest Construction update, which considers the decision in Victory House General Partner Ltd, Re A Company. The case illustrates the difficulties of enforcing a judgment debt arising from an adjudicator’s decision by issuing a winding up petition.

Facts

RGB was appointed as the contractor under a design and build contract for the conversion of an office building to a hotel in Leicester Squire, London. Victory House, the employer, disputed RGB’s interim application no. 30. 

RGB referred the dispute to adjudication and Victory House was ordered to pay the sum applied for because, amongst other matters, Victory House had failed to serve a valid Pay Less Notice. 

Victory House then issued “Part 8” court proceedings seeking declarations as to why it should not pay. Concurrently, RGB issued proceedings to enforce the adjudicator’s decision. The two sets of proceedings were heard together and RGB obtained judgment in its favour. Victory House failed to pay the full judgment sum but did make a substantial payment. 

RGB subsequently pursued a second adjudication concerning the value of all the works carried out, up to and including interim application no. 31 (less all previous payments made by Victory House). Applying the terms of the contract, the adjudicator concluded that the value of RGB’s work was £1.5m less than the value of the payments Victory House had already made, and therefore decided that the sum payable by Victory House to RGB was “nil”. 

Victory House pursued a further adjudication alleging that, due to defective works, RGB was in breach of contract.

Given that the judgment debt following the first adjudication had not been paid in full and had not been stayed by the Court, RGB issued a winding up petition on the basis that Victory House was unable to pay its debts. 

Victory House applied to strike out the petition on the basis that, as a result of the decision in the second adjudication, (a) it had a legitimate cross-claim, and (b) the debt was disputed on substantial grounds. 

Decision 

The judge sided with Victory House and dismissed the petition. He was satisfied that Victory House had a legitimate cross-claim on the basis that if Victory House was to pay the judgment debt, by virtue of the decision in the second adjudication, it would be entitled to repayment of that sum by way of restitution.  

More importantly, from a construction adjudication point of view, Victory House also relied on the case of Grove Development v S&T. The judge agreed that Victory House was entitled to rely on the fact that the second adjudicator had already decided the true value of the works done by RGB up to that date, which was less that it had been paid. 

Therefore, dismissing the petition was “a more just result than the alternative contented for” by RGB.

Conclusion

This decision further confirms the courts’ pragmatic approach to smash and grab adjudications. Potential claimants should note that a quick enforcement will no longer be available if there is an unfavourable second or counter-adjudication. This also means that the party on the receiving end of a smash and grab adjudication should consider the possibility of counter-adjudicating on the true value of the works. If there is no legitimate cross-claim to rely upon, it may be difficult to persuade the court to dismiss a quick-draw winding up petition.