FG Skerritt Ltd v Caledonian Building Systems Ltd

An adjudicator’s decision will ordinarily be enforced, even where the successful party is insolvent, unless the paying party has real grounds for challenging the sum ultimately due. A stay may be appropriate where equitable set-off claims concerning defective or incomplete work could exceed the adjudicated sum and the claimant may be unable to repay it. The court may lift the stay where a parent company provides adequate security. The court should assess the guarantee using current financial information, including information reasonably necessary to determine whether the guarantee is reliable. The possible future application of insolvency set-off under Insolvency Rules 1986, rule 4.90, cannot be applied by analogy where the claimant is insolvent but not in liquidation.

FG Skerritt Ltd sought summary judgment to enforce an adjudicator’s decision awarding it £184,794 plus VAT under sub-contract invoices. Caledonian Building Systems Ltd did not challenge summary judgment itself, but sought a stay of enforcement because FGS was insolvent and Caledonian asserted equitable set-off claims for the cost of completing and remedying defective works.

The court considered whether the potential operation of insolvency set-off should affect enforcement, whether the asserted cross-claims provided special circumstances for a stay, and whether a guarantee from FGS’s parent company, Melham Group Ltd, provided sufficient security.

1. Summary judgment and stay. Summary judgment was appropriate on the sums awarded by the adjudicator. However, insolvency will usually justify a stay where there are real grounds for challenging whether the adjudicated sum will ultimately be due. Caledonian’s equitable set-off claims, including substantial possible future remedial costs, exceeded the adjudicated sum and therefore constituted special circumstances making enforcement initially inexpedient: see Wimbledon Construction Company 2000 Ltd v Derek Vago [2005] BLR 374.

2. Insolvency set-off. Rule 4.90 of the Insolvency Rules 1986 could produce a wider mutual set-off in a liquidation. But FGS was insolvent and not in liquidation. The court would not apply the rule by analogy or anticipate a future liquidation, since that would apply a statutory provision in circumstances where it did not yet operate. The approach in Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd [2000] BLR 522 was therefore not applied to the present circumstances.

3. Security by guarantee. The purpose of a stay is to preserve Caledonian’s ability to recover any sum which it might later establish was wrongly paid. A bond or guarantee providing equivalent security may overcome the need for a stay under RSC Order 47 rule 1(1). The court applied the principle discussed in McConnell Dowell Constructors (Aust) Pty Ltd v National Grid Gas Plc [2007] BLR 92.

4. Financial evidence. The court preferred the evidence of Grant Thornton as to MGL’s assets and considered that an appropriate guarantee could provide sufficient security. Where an insolvent claimant relies on a parent-company guarantee to avoid a stay, it should provide current financial information necessary for the court and the opposing party to assess the guarantee. The court distinguished the general disclosure observations in Farrelly (M & E) Building Services v Byrne Brothers (Formwork) Ltd [2013] EWHC 1186 (TCC).

5. The court ordered summary judgment, with enforcement stayed until the agreed guarantee was executed and delivered to Caledonian’s solicitors. Once that occurred, the stay was to be lifted.