The claimant, Alun Griffiths (Contractors) Ltd ("Alun") sought summary judgment in the sum of £3,316,487.55 to enforce an adjudicator's decision against Carmarthenshire County Council ("the Council"). The Council did not accept that the adjudicator's decision reflected the true state of the parties' account and sought to resist enforcement by way of a stay of execution pending an adjudication to determine the true value of the works. The Court was asked to consider whether a guarantee provided by the holding company of the contractor ("the Parent Company") was sufficient to protect the employer's position in the event the true valuation resulted in monies being repaid to the employer.
Parent Company Guarantee
Alun was balance sheet insolvent at the time of the adjudicator's decision. The Council sought a stay of execution pending the outcome of a true value adjudication on the basis that Alun was insolvent and the Parent Company Guarantee they provided was inadequate because the cash-pooling arrangements of the group of companies had not been adequately explained, and in the Council's view, it offered no better protection than a claim against Alun.
The Parent Company's balance sheet showed a net positive asset position of £1.5bn due to the value of the investments of its subsidiaries. The Council argued that that the Parent Company may not be able to repay the judgment sum because they were not a trading company and the assets were illiquid. The court disagreed noting:
- The Parent Company had a very healthy balance sheet and was plainly balance-sheet solvent;
- Since the Parent Company was not a trading company it does not hold cash and has net current liabilities;
- The existence of net current liabilities did not of itself in the Court's view mean that a company cannot pay its debts as they fall due. They can be an indicator that cash will be very tight and without careful management a company may be insolvent. In this case however the Parent Company's cash position was driven by the cash-pooling arrangement operated by the group of companies;
- In any event, the ultimate parent company of the group had a very substantial positive cash position and there is no evidence that it will not continue to support the Parent Company's own cash position.
Court's decision & Implications
HHJ Pepperal concluded there were no proper grounds to stay the enforcement of the adjudicator's decision. The court found that the Council had not defended the enforcement claim nor resisted the entry of judgment and therefore granted summary enforcement of the adjudicator's decision in favour of Alun. The Council's application to stay the execution of that judgment was therefore declined by the court who said 'there was no merit whatever in its application to stay judgment'. Having determined that there was "no merit whatever" in the application, and also that the Council had at one point suggested it would pay the adjudicator's award before then raising the objections brought in the applications, the Court ordered that the Council should pay costs on an indemnity basis noting that its conduct had been "unreasonable to a high degree".
This case offers practical guidance as to how a company can demonstrate solvency in order to defeat an application for a stay of execution. Even where a company is a non-trading company and cannot demonstrate liquid cashflow, it can still act as an adequate guarantor if its assets exceed the judgment debt. Defendants making applications should also be aware that applications made without merit may result in an indemnity costs order being made by the Courts.
