A ‘true value’ adjudication award can provide a genuine cross claim sufficient to defeat a winding-up petition regardless of the petition debt being a judgment debt
The case of Victory House General Partner Ltd v RGB P&C Ltd  EWHC 1143 (Ch) once again demonstrates the tension in construction disputes between the nature of adjudication awards as binding, enforceable interim remedies, and the court’s insolvency jurisdiction.
The sparring parties here were the employer (“Victory”) and its building contractor (“RGB”) in the development and conversion, pursuant to a JCT Design and Build Contract 2011, of an office building.
Mid-contract, RGB served an application on Victory for an interim payment. Victory served a Payless Notice disputing the sum it was liable to pay. The dispute was referred to adjudication where the adjudicator rejected Victory’s protestations against payment and awarded RGB the full sum claimed of £682,802.88 (“the first adjudicator’s award”).
Despite further litigation by Victory, RGB obtained summary judgment in the TCC to enforce the first adjudicator’s award. Victory did not appeal the judgment, nor did it pay the judgment as ordered.
RGB subsequently served a further interim application for payment which included the sum contained in the first adjudicator’s award. Victory again disputed the application, which was referred to an adjudicator. The adjudicator valued the completed works and found that Victory had paid on account sums exceeding the true value of the completed works by £1.5 million. ‘Nil’ was therefore owing by Victory on the application.
RGB presented a winding up petition against Victory relying on the judgment debt (comprising the first adjudicator’s award) plus interest, namely £819,363.46.
Victory applied for notice of the petition to be restrained, along with dismissal of the petition on grounds that it had cross-claims exceeding the judgment sum. It referred to the decision of the second adjudicator that it had ‘overpaid’ by reference to the value of completed works.
Although he emphasised that the judgment was not a disputed debt and RGB were entitled to enforce it in whichever way it chose, Morgan J dismissed the petition based upon the judgment on grounds that Victory had a bona fide cross-claim in restitution on substantial grounds. If Victory were to pay the judgment, it would immediately be entitled to request repayment of the sum paid in excess of the second adjudicator’s ‘value’ award (applying Grove Developments Ltd v S&T (UK) Ltd  EWHC 123 (TCC), per Coulson J (as he then was)).
There were also no special circumstances to take the case outside of the general rule that a petition should be dismissed where there was a genuine cross claim exceeding the petition debt.
Hannah Laithwaite / 11th Sep 2018
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