In Alun Griffiths v Carmarthenshire County Council [1] the TCC refused to grant a stay of execution of an adjudicator’s decision as the claimant had provided a parent company guarantee which was deemed to be sufficient security for the payment to be made.

Background

Alun Griffiths sought summary judgment to enforce an adjudicator’s decision against Carmarthenshire County Council. The Council didn’t accept that the adjudication decision reflected the true state of the parties’ account and intended to refer the issue of the true value of the works to a second adjudication.

The Council, whilst accepting that Alun Griffiths was entitled to summary judgment, sought a stay of execution pending the outcome of the second adjudication on the grounds that Alun Griffiths wouldn’t be able to repay the adjudication sum should the decision be overturned, and the parent company guarantee (offered by Tarmac Holdings) was inadequate.

Generally, the court may grant a stay if special circumstances make it inappropriate to enforce the decision [2]. The courts will exercise their discretion whilst considering the following points [3]:

• As adjudications are designed to be a quick and inexpensive method of resolving construction disputes, decisions should be enforced and the successful party shouldn’t be kept from its money.
• If the claimant is insolvent, and therefore unlikely to be able to repay the judgment sum, then a stay will usually be granted [4].
• Even if the evidence suggests that the claimant wouldn’t be able to repay the judgment sum, this won’t usually justify the grant of a stay if:
  • The claimant’s financial position is the same or similar to what it was at the time the relevant contract was made [5]; or
  • The claimant’s financial position is due to the defendant’s failure to pay the sums awarded by the adjudicator [6].

If a claimant can provide a bond or guarantee which provides sufficient security, it’s common for a judge to refuse the application for a stay [7].

The dispute

The Council argued that Alun Griffiths’ filed accounts showed a record loss and deteriorating financial position which rendered the balance sheet insolvent. They also argued the company’s growing net current liabilities indicated possible cash flow issues.

Alun Griffiths recognised the concerns raised and offered a parent company guarantee from Tarmac. The issue before the court was to determine the adequacy of the guarantee.

The Council raised two lines of argument against the parent company guarantee, concerning Tarmac’s balance sheet and cash flow.

Tarmac’s balance sheet showed a very positive net asset position, but the Council argued it was insufficient because:

• Whilst Tarmac’s balance sheet showed a positive net asset position, this was due to the carrying value of its investments in its subsidiaries; and
• The balance sheet showed a reduced net asset position compared to previous years.

It wasn’t surprising to the judge that the bulk value in a holding company’s balance sheet should be in its investments in subsidiaries. And whilst the net assets were reduced, they were still in excess of £1.5 billion. There was therefore no evidence to undermine Tarmac’s accounts based on its balance sheet.

In relation to cash flow, the Council argued that:

• Tarmac’s accounts showed substantial net current liabilities, an indicator of cash flow insolvency;
• As Tarmac didn’t hold any cash and had significant short-term liabilities, this made them cash flow insolvent; and
• The ability of Tarmac to repay the sum would depend on the cash holdings within the group.

The judge considered there were no merits to these arguments as Tarmac had a healthy balance sheet and the existence of net current liabilities doesn’t mean a company is unable to repay its debts. In any event, Tarmac’s own parent company had a substantial positive cash position and there was no evidence that it wouldn’t support Tarmac.

Decision and takeaway points

The judge concluded that the guarantee offered by Tarmac was sufficient to protect the Council’s position and so there were no grounds for a stay of execution of the adjudicator’s decision.

If a claimant can provide a parent company guarantee or bond (if there are doubts as to its solvency) which gives the defendant sufficient security, then the courts will strive to uphold the principles of adjudication – i.e., that the judgment sum shouldn’t be unnecessarily withheld from the successful party. It’s only in very rare cases that a judge will choose to stay the execution of an adjudicator’s decision.

This article was originally written and published on the internet by Walker Morris LLP.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.

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