Pioneer Cladding Ltd v John Graham Construction Ltd

Contract terms must not undermine the statutory adjudication scheme by postponing payment of an adjudicator’s award or deterring a party from adjudicating. Such provisions are unlawful and unenforceable. A stay of execution remains exceptional. It may be granted where the successful party is insolvent or probably unable to repay the judgment sum, unless its financial position was materially known when the contract was made or was caused substantially by the defendant’s non-payment.

Pioneer Cladding Ltd carried out cladding and curtain walling works for John Graham Construction Ltd under a sub-contract containing adjudication provisions. Two adjudications produced a net award of £193,005.53 in Pioneer’s favour. Graham argued that the contract required the award to be placed in a joint deposit account and that Pioneer should bear all adjudicator’s fees. Graham also applied for a stay of execution pending arbitration.

The issues were whether those contractual provisions complied with the Housing Grants, Construction and Regeneration Act 1996 and the Scheme for Construction Contracts, and whether Pioneer’s financial position justified a stay.

1. Clause 21(v), requiring a monetary adjudication award to be placed in escrow rather than paid to the successful party, breached the policy and requirements of the Housing Grants, Construction and Regeneration Act 1996 and the Scheme for Construction Contracts. It was unlawful and unenforceable. The court followed Yuanda (UK) Limited v WW Gear Construction Limited [2010] PLR 435 and Sprunt Limited v London Borough of Camden [2012] BLR 83.
2. The term requiring Pioneer to pay all adjudicator’s fees was also unlawful because it could discourage adjudication. The parties were liable equally. After deducting £4,340.04, judgment was entered for Pioneer for £188,665.49.
3. The court reaffirmed the principles in Wimbledon Construction Company 2000 Limited v Derek Vago [2005] BLR 374. Adjudicator’s decisions should ordinarily be enforced promptly. A probable inability to repay may constitute special circumstances. Insolvency will usually justify a stay, subject to the recognised exceptions concerning the claimant’s financial position when the contract was made and financial difficulties caused substantially by the defendant’s non-payment.
4. Pioneer was insolvent and could not repay the judgment sum if the arbitration went against it. Graham had been materially misled about Pioneer’s financial strength and cash reserves, and Pioneer’s financial difficulties pre-dated Graham’s alleged non-payment. The exceptions therefore did not apply.
5. Execution of the judgment was stayed pending the outcome of the ongoing arbitration. Costs and consequential matters were left unaddressed.