FTH Ltd v Varis Developments Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Adrian Williamson |
| Judgment Date | 08 June 2022 |
| Neutral Citation | [2022] EWHC 1385 (TCC) |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Docket Number | Claim No: HT-2022-000029 |
[2022] EWHC 1385 (TCC)
Mr Adrian Williamson QC
(siting as a Deputy High Court Judge)
Claim No: HT-2022-000029
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
TECHNOLOGY AND CONSTRUCTION COURT (QBD)
Royal Courts of Justice
Rolls Building
Fetter Lane
London EC4A 1NL
Paul Darling OBE QC and David Hopkins (instructed by Shemmings Hathaway LLP) for the Claimant
Tom Owen (instructed by DKLM LLP) for the Defendant
Hearing dates: 6 May 2022
This judgment was handed down by the Judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be 10:30 on Wednesday 8th June 2022.
Mr Adrian Williamson QC:
Introduction
In these proceedings, the Claimant (“FTH”), a company subject to a Company Voluntary Arrangement (“CVA”) seeks to enforce two Adjudication Awards dated 14 th February 2020 and 11 th September 2020.
The Defendant (“Varis”) does not dispute that these are valid Awards, but resists the grant of summary judgment, alternatively seeks a stay, on the basis of FTH's financial position and its own cross-claims. This case, therefore, raises once more the question of whether the Court will summarily enforce Adjudication Awards where the Claimant is subject to a CVA.
I shall deal with the application for summary judgment and the stay application at Sections B and C below, before setting out my conclusions at Section D. But it is first necessary to summarise the factual background.
A: Background
The parties entered into a design and build contract in August 2018 (“the Contract”).
On 22 nd October 2019, Varis issued a Pay Less Notice against FTH's application. This showed a Gross Valuation of circa £3.3m. After allowance for retention and previous Certificates, £317k was due, but this was withheld on the basis of an alleged failure to provide Collateral Warranties.
By notice dated 25 th October 2019, Varis purported to terminate the Contract. However, by notice dated 29 th November 2019, Varis issued a further Pay Less Notice showing a valuation after retention of circa £3.3m and an amount due of circa £90k, but subject to numerous alleged withholding items.
On 20 th January 2020, in the first adjudication between the parties, Mr. Redmond upheld the validity of the Pay Less Notice of 22 nd October 2019.
On 14 th February 2020, in the second adjudication, Mr. Bingham concluded that Varis' termination was invalid and that they had repudiated the Contract.
On 13 th May 2020, FTH entered a CVA. The CVA proposal said that the CVA was to last for 12 months (with power to extend), with the aim of producing a dividend for unsecured creditors of 56p in the £. The statement of affairs showed liabilities of £2.2m, including trade creditors of circa £1.9m and a debt to HMRC of £172k. These liabilities did not include any provision for a cross-claim from Varis.
The proposal stated:
“Brief details of key terms
of this proposal
1) The balance in the Company Bank account together with any monies received by the Company in respect of retention claims will be paid to the Company and used for the sole purpose of meet [sic] the ongoing costs of pursuing the claims against Varis Developments Ltd (VDL) and Filmer Road (FR), as detailed below. Any surplus not required for this purpose will be injected into the CVA. Should these funds be insufficient to meet the ongoing costs, or the retention funds are not received in time, any shortfall will be met by FH.
…
3) After the deduction of FH's costs as detailed above, 85% of any funds received in respect of the net proceeds of the VDL and FR claim will be injected into the arrangement. The remaining 15% will be paid to the Company to provide cashflow for trading going forward, if viable.
…
Anticipated dividend
under the Arrangement
(after professional costs)
56p in the £ (see Appendix 4 for further details). This is based upon a projection that £1,300,000 will be available for the benefit of the arrangement. As detailed in the proposal, this figure cannot be calculated with any certainty as it is based upon:-
i) the resolution of claims against VDL and FR;
ii) the associated costs of resolving the claims which will be dependent upon whether the claim is resolved by way of settlement, mediation or further Adjudication is required to determine the final claim amounts;
iii) Recovering funds from VDL and FR.”
(the reference to “FH” is to a director, Mr Hughes)
On 11 th September 2020, Mr. Bingham issued Adjudicator Award 3. In summary, this provided:
“8.5 COLLECTION
Collection
£
Assessment by YS associates accepted by the Adjudicator
3,409,330.71
Adjustment [at para 8.2.6 above]
90,455.33
Loss & Expense [at para. 8.3.11 above] (Loss of Chance)
32,845.77
Adjustment [at para 8.4 above]
38,117.00
Total
£3,570,748.81
“8.6 Net Cash Due
Total Gross Due
£3,570,748.81
Retention
£Nil
Less previous Cash
£2,900,191.09
Balance
£670,557.72
Plus VAT [at para 8.2.6 above]
£86,801.22
Total
£757,358.94”
It should be noted that Award 3, as appears above, was largely based upon Varis' pre-termination Valuation and, of course, assumed that Varis had no claim arising out of the termination, in view of Award 2.
On 28 th September 2020, Varis indicated through their solicitors that they would resist any application for summary judgment. They intimated a cross claim of “around £1.3 million”, based upon their losses arising from their “entitlement to terminate”. Further particulars of this cross claim, now put at £1.7m, are set out in a letter of 6 th November 2020. This letter was also sent to the CVA Supervisors on that same day as or accompanying a proof of debt.
These proceedings were issued on 3 February 2022.
B: Summary Judgment
Where a company in insolvent liquidation has obtained an adjudication decision in its favour, that decision will not generally be enforced by way of summary judgment: see Bouygues (UK) Ltd. v Dahl-Jensen (UK) Ltd [2000] B.L.R. 522 at paras. 29–36 per Chadwick LJ.
The essential reason for this approach is explained by Lord Briggs in Bresco v Lonsdale [2020] B.L.R. 497 at para. 28 as follows:
“The basic scheme whereby an unsecured creditor's claims may only be pursued by way of proof and participation in a pari passu distribution of any available surplus after discharge of prior claims, whereas the liquidator may pursue the company's claims in full, and with every available tool for enforcement, risks causing a real injustice where there are cross-claims between the company and one of its creditors arising from their mutual dealings. Leaving aside the special position of fiduciaries, there is no fairness in a creditor having to accept only a proportion of the debt due, while the company can recover on its cross-claim against the same creditor in full.”
Different considerations may apply where a company subject to a CVA has obtained such a decision. Coulson LJ set out the potentially different approach in Bresco v Lonsdale [2019] 182 Con L.R. 1 in the Court of Appeal, at para. 108:
“… the general position relating to a CVA may, depending on the facts, be very different to the situation where the claimant company is in insolvent liquidation. In the latter case, claims being made by the company are part of what might be called a damage limitation exercise, whereby the liquidators endeavour as best they can to pay dividends to creditors. A CVA is, or can be, conceptually different. It is designed to try and allow the company to trade its way out of trouble. In those circumstances, the quick and cost-neutral mechanism of adjudication may be an extremely useful tool to permit the CVA to work. In those circumstances, courts should be wary of reaching any conclusions which prevent the company from endeavouring to use adjudication to trade out of its difficulties. On one view, that is what adjudication is there for: to provide a quick and cheap method of improving cashflow.”
(emphasis added)
The facts in Bresco (in fact the relevant aspect of the conjoined appeals was the dispute between Cannon and Primus) are set out at paras. 64 to 79 of the Judgment of Coulson LJ. It should be noted that Coulson LJ, in upholding the Judgment of HHJ Waksman (as he then was), below, observed that:
“[78] Judge Waksman QC's judgment can be found at [2018] EWHC 2143 (TCC). One point should be made at the outset. The judge expressly concluded (at [25]) that:
‘On any view if Primus was to make all or most of its recovery it will emerge solvent with all debtors paid and something left over, and that was the basis for having the CVA to enable it to do so.’
This is therefore a very different case to the straightforward situation where the claiming company is in insolvent liquidation and the liquidator is engaged in the process of recovering what he can in order to make a distribution to creditors. Here, not only was the CVA designed to allow Primus to trade out of its difficulties but, on the judge's findings if the CVA was allowed run its proposed course, Primus would avoid liquidation altogether.
[79] It is clear from the Judgment that the only argument Cannon raised as to why there should not be summary judgment was based on the decision of Akenhead J in Westshield. That was a case about a company in a CVA where summary judgment was not granted. Judge Waksman QC, in his usual way, carefully analysed Westshield and concluded that Akenhead J was not saying that, merely because a company is in a CVA, summary judgment should be refused. The relevant...
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