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The Sanctus Adjudications
Midas Construction Ltd (“Midas”), a company in liquidation, was engaged by Harmsworth Pension Funds Trustees Ltd (“Harmsworth”) under a JCT Design and Build Sub-Contract 2011, as amended, dated 9 July 2018 to carry out development works at Unity Street, Bristol (the “Sanctus Contract”). The value of the works under the Sanctus Contract was £24,087,347.50.
Clause 8.7.4 of the Sanctus Contract set out a mechanism to be used in the event that Midas became insolvent in order to determine what sums were due to or owed by Harmsworth to Midas once the works were complete. Clause 8.7.4 required Harmsworth to prepare a statement setting out the following:
“.1 the amount of expenses properly incurred by the Employer, including those incurred pursuant to clause 8.7.1 and, where applicable, clause 8.5.3.3, and of any direct loss and/or damage caused to the Employer and for which the Contractor is liable, whether arising as a result of the termination or otherwise;
.2 the amount of payments made to the Contractor; and
.3 the total amount which would have been payable for the Works in accordance with this Contract;”
A dispute arose between the parties relating to Midas’s entitlement to payment following on from Harmsworth’s issuing of a statement under clause 8.7.4 of the Sanctus Contract. A first adjudication decision was issued on 15 December 2022 in which it was decided that Harmsworth was required to issue a statement under clause 8.7.4. Harmsworth went on to issue its clause 8.7.4 statement on 16 December 2022.
Clause 8.7.5 of the Sanctus Contract goes on to confirm that:
“If the sum of the amounts stated under clauses 8.7.4.1 and 8.7.4.2 exceeds the amount stated under clause 8.7.4.3, the difference shall be a debt payable by the Contractor to the Employer or, if that sum is less, by the Employer to the Contractor.”
The clause 8.7.4 statement under the Sanctus Contract set out the various figures of the amounts set detailed in clauses 8.7.4.1, 8.7.4.2 and 8.7.4.3. Midas disputed the figure provided in relation to clause 8.7.4.2 and as a result it argued that it was owed the sum of £1,551,528 under clause 8.7.5. Harmsworth refused to pay this sum and as a result, a further dispute arose.
Midas brought a second adjudication seeking a finding that the clause 8.7.4 statement stated the wrong figures owed to Midas, and that if this was corrected, Midas would be owed a total sum of £1,551,528. The adjudicator decided that Midas was owed the sum claimed.
The Print Hall Adjudication
Harmsworth resisted engagement in enforcement in relation to the Sanctus Adjudications (including in relation to security) on the grounds that Midas owed it sums in relation to alleged defects under a separate building contract relating to a different project (the “Print Hall Contract”). As a result, Midas brought a further adjudication seeking a finding that no sums were owed by Midas to Harmsworth under the Print Hall Contract. The adjudicator decided in favour of Midas.
Pythagoras (debt collector engaged by the administrators for Midas) then asked Harmsworth to agree to enforcement of the second Sanctus adjudication, subject to a stay of three months in which Harmsworth could commence final or overturning proceedings. No such agreement was forthcoming from Harmsworth.
During these proceedings, Harmsworth resisted enforcement on the following grounds:
- there is inadequate security for the cost of final proceedings that Harmsworth may bring upon enforcement; and
- the enforcement claim is champertous because it is in breach of the Damages Based Agreement Regulations 2013 and is therefore an abuse of process.
The second ground was not pursued with any force by Harmsworth and was dismissed immediately by the judge. As to the first ground, the judge was referred to paragraphs 14 to 18 and 28 of His Honour Judge Partfitt’s judgment in Styles & Wood Limited (in administration) v GE CIF Trustees Limited [2020] EWHC 2694 (TCC). Here, when considering security for costs, the court gave credit for work already done in the adjudication meaning less was required in terms of costs than would have been if fresh pleadings were being considered.
Counsel for Harmsworth also pointed the judge towards paragraph 84 of Mr Justice Constable’s judgment in Meadowside Building Developments Ltd (in Liquidation) and 12-18 Hill Street Management Company Ltd [2019] EWHC 2651 (TCC) arguing that where safeguards are put in place for the solvent party, the safeguard must seek to place the responding party in a position similar to what it would have been in had it been solvent.
On this basis, Counsel for Harmsworth argued that if Midas was granted a stay, it would be deferring the risk it faces of that claim succeeding and Harmsworth’s right to defend itself with reference to the Print Hall claim. The judgment would be left hanging over Harmsworth for a number of years and it opens the door for Midas to push the settlement of the claim. Harmsworth therefore argued that this would put it in a significantly worse position than it would have been in had Midas been solvent.
Decision
The judge accepted the argument put forwards on behalf of Harmsworth and as such accepted that it would be unfair for Midas to dictate how Harmsworth is able to advance its claims by insisting on the staging of security.
The judge then moved on to assessing what the appropriate level of security would be, with particular reference to the witness evidence provided by Harmsworth’s solicitor where costs estimates for each claim were provided. The witness evidence of Midas’s solicitor was also considered by the judge, which contained a detailed assessment of the costs associated with both claims and security for costs was ordered in the sums of £150,000 for the Sanctus claim and £400,000 for the Print Hall claim.
This case illustrates the importance of clear contractual mechanisms to be used in insolvency situations and demonstrates how the courts will balance the rights of insolvent companies and their creditors.