Iain Drummond and Bryon Anderson examine the recent Technology and Construction Court decision in Alun Griffiths (Contractors) Limited v Carmarthenshire County Council (5 September 2023). This case highlights the policy of adjudication decisions being enforced summarily. Any argument to stay execution, which would pause the obligation to make payment, where based on the insolvency of a company in a company group, must demonstrate the parent company is unable to provide necessary financial support.
The claimant, Alun Griffiths (Contractors) Limited, sought judgment for £3,316,487.55 to enforce an adjudicator's decision in its favour against Carmarthenshire County Council.
The defendant, the council, accepted that the claimant was entitled to summary judgment but sought a stay of execution pending the outcome of a further adjudication, a true value adjudication, that it intended to pursue. The council sought a stay based on the alleged insolvency of the contractor and the inadequacy of the contractor’s parent company guarantee to safeguard the council’s position.
Under rule 83.7(a) of the Civil Procedure Rules 1998, which apply in England and Wales, there may be a stay of execution if there are "special circumstances which render it inexpedient to enforce the judgment or order." If a claimant is insolvent, then a stay of execution will usually be granted, and this was the basis for the defendant’s position. However, a stay may be avoided in these circumstances if a bond or guarantee is offered to provide security.
Due to its accounts showing a balance-sheet insolvent position, the claimant offered a guarantee from its parent company, Tarmac Holdings Limited (“Tarmac”). Although Tarmac is not a trading company and does not hold cash, it held investments in several subsidiary companies with over £1.5 billion in net assets at the time of the decision.
The court determined that no evidence was provided that Tarmac’s accounts were incorrect or on further investigation demonstrated insolvency. Tarmac were held to have a “substantial positive net-asset position”. The court rejected the evidence of the council’s forensic accountant expert.
On cashflow, it was not enough for the council to indicate that Tarmac’s cash will be very tight and that without careful management the company may be insolvent. Tarmac’s position simply reflected the cash-pooling arrangements operated by the group of companies. The court also considered the position of the claimant’s ultimate parent company, noting that it had “a very substantial positive cash position” with no evidence provided that it would not be able to support Tarmac.
Given that Tarmac had an overall healthy net-asset position, the judge went so far as to say it was “fanciful to suggest that the group would not support its cash requirements and that Tarmac will not be able to repay a judgment sum of circa £3 million in the event that it is called upon to do so”.
The defendant’s argument that Tarmac may transfer its investments at an undervalued amount to another group company was rejected, as such a transfer may be set aside by the court under insolvency law.
Points to take away
- The courts’ policy is to enforce Adjudication decisions quickly.
- Parties seeking a stay of execution based on the alleged insufficiency of a parent company guarantee as security for a claimant’s insolvency, will need clear evidence of the guarantor’s likely inability to pay debts as they fall due and should consider the financial position of the ultimate parent company also.
- The courts will only accept arguments of insolvency that clearly and factually demonstrate that a party’s position will not be protected.
- A guarantee from a parent company that has an ultimate parent company with a very substantial positive cashflow position, will likely be sufficient security in the absence of evidence that the parent companies will not be able to provide financial support.