| Date | 14 April 1999 |
|
|
| Judgment | Rentokil Ailsa Environmental Ltd -v- Eastend Civil Engineering Ltd, Sheriff Court 12 March 1999 |
|
|
| The Issue | Raising separate cross-claims as a means of denying payment against an adjudicator's decision. |
|
|
| Implication |
The courts will look unfavourably upon cross-claims as justification for non-payment of an adjudicator's decision. In Scotland the use of arrestment in such circumstances may be regarded as an abuse of process. |
printAnyone who was in doubt about the justification for and the commercial impact of the new construction act should read the judgment in the case of Rentokil Ailsa Environmental-v-Eastend Civil Engineering heard in the Sheriff Court in Scotland on 12 March 1999. This is the third decision of the courts in as many weeks aimed at interpretation of the payment and adjudication provisions of the Housing Grants, Construction and Regeneration Act 1996. Eastend Civil Engineering are described in the judgment as a small engineering firm with an annual turnover of approximately £450,000. Rentokil in contrast are a large national company. Eastend was asked to tender for and subsequently carried out some fifteen contracts. However, by November 1998 working relationships had broken down and Rentokil wrote to Eastend intimating that all sums due were being withheld whilst it undertook a trawl of all sites for the purpose of checking possible defects. Eastend suggested the appointment of an independent specialist and offered to make good any defects. This offer was not taken up but meanwhile Rentokil continued to withhold a sum in the order of £170,000. As a consequence Eastend invoked adjudication in respect of three of the contracts where the lion's share of outstanding moneys lay. An adjudicator was duly appointed and awards were made by him totalling approximately £166,000 inclusive of VAT. From the first intimation of a refusal to pay, to the obtaining of an adjudicator's decision in its favour, barely three months including the Christmas and New Year period had elapsed. Rentokil did not however immediately pay this sum and accordingly Eastend were forced to raise proceedings for payment in the Court of Session. Sensing that matters were quickly moving against them, Rentokil changed tack. Without prior intimation of specific claims it raised a Sheriff Court action for damages in respect of thirteen contracts in the total sum of £183,000 and obtained a warrant for the arrestment of assets owing to Eastend. Arrestment is a peculiarly Scottish process by which property due or belonging to a debtor, but in the hands of a third party, may be attached by a creditor. For example, a creditor will commonly attempt to arrest balances due to the debtor by his bank. An arrestment prohibits the third party from paying the debtor, although the creditor needs to take further steps if he himself wishes to be paid or take possession of the subjects arrested. On the same day as obtaining the arrestment Rentokil delivered to the solicitors for Eastend payment of the £166,000 awarded by the adjudicator, and then immediately arrested those funds in the hands of Eastend's solicitors. I referred to the issue of cross-claims when reporting the Macob Civil Engineering-v-Morrison Construction case in Contract Journal on 3 March 1999. Clearly a paying party may be placed at considerable risk where, simply for the failure of issuing a timely notice to withhold moneys it may be denied the opportunity to raise an otherwise valid set-off. The provisional nature of the adjudicator's decision as referred to by Mr Justice Dyson may provide little reassurance when there is serious doubt about the security of funds in the hands of the 'successful' party. Returning to the present case Eastend applied for the arrestment to be lifted on the basis that it was unnecessary and oppressive. Solicitors for Eastend argued that the arrestment defeated the award made by the adjudicator. It was submitted that Rentokil never intended to make payment and their actions represented bad faith. The overall objectives of the Construction Act were outlined and the observations of Mr Justice Dyson in the Macob case were highlighted. In short it was argued that the failure to comply with the decision of an adjudicator would substantially undermine the adjudication procedure. Counsel for Rentokil argued that the adjudication had been duly observed and payment made. The arrestment was in respect of a separate matter concerning defects raised subsequently to the adjudication. There was no provision in the Construction Act prohibiting an arrestment on the dependence of a court action which followed an adjudication. Rentokil further submitted that there was a distinction between an adjudicator's decision and enforcement of payment, and that having tendered payment in terms of the award, it was entitled to arrest funds on the dependence of a quite separate court action. Sheriff Gilmore was unimpressed with this argument. "It appears to me to be almost obtuse if the pursuers, having participated in an adjudication and made representations on a construction contract, can then circumvent and negate the effect of an adjudicator's award, where they are not content with it, by raising a court action relating to the same subject matter and arrest the sum awarded on the dependence of the court action thus depriving the defenders of the benefit of the award". "By means of arrestment the pursuers have not only, in practical terms for the defenders, defeated the adjudicator's award, but also remedied their shortcoming in not giving statutory notice of an intention to withhold payment by ensuring the funds do not reach the defenders". Accordingly he concluded the arrestments were not used to protect the legitimate interests and rights of Rentokil but mainly to defeat the adjudicator's award and strain the financial credit of Eastend. This was an abuse of process which required to be redressed and thus the arrestments were to be lifted.
CJ-9915
|
|||
|
© Brewer Consulting |
|||
 |
|||