BERNARD SPORT SURFACES LTD v ASTROSOCCER4U LTD

No moratorium should be imposed to prevent the enforcement proceedings begun by the contractor from proceeding despite the employer giving notice of its intention to appoint an administrator and judgment should be entered to enforce the decision awarding the contractor a specified sum
 

BERNARD SPORT SURFACES LTD v ASTROSOCCER4U LTD

Technology and Construction Court

Coulson J

8 September 2017

No moratorium should be imposed to prevent the enforcement proceedings begun by the contractor from proceeding despite the employer giving notice of its intention to appoint an administrator and judgment should be entered to enforce the decision awarding the contractor a specified sum

 The contractor referred to adjudication a payment dispute about a football pitch it provided to the employer. The adjudicator awarded a specified sum on the (sole) basis that the employer had failed to serve a pay less notice in respect of its allegation of defects in the work which formed the subject matter of the contractor’s payment notice. The employer threatened to give a notice of intention to appoint an administrator, which would ordinarily have meant that there would have been a moratorium on the proceedings brought by the contractor to enforce the adjudicator’s decision. However, the contractor applied for and was granted permission to continue with its proceedings and summary judgment to enforce the decision.

Coulson J in making these orders stated that the factors present in South Coast Construction  v Iverson Road (2017) in which permission was granted were also present in the instant case, namely that (i) The enforcement proceedings were effectively at their end because all that remained was the judgment to enforce (ii) Giving permission would not frustrate the administration process and (iii) The facts that there was no risk of undue, unfair or unreasonable preference if judgment were to be entered and had been adjudication proceedings together with various aspects of conduct all pointed towards giving permission. The criticisms of the responding party’s conduct in South Coast were nothing compared to the criticisms applicable to the employer’s conduct in the instant case, which was an attempt to prevent the debt owing to the contractor from being paid.

The employer’s notice of intention to appointment an administrator (i) was entirely bogus (ii) was defective because it contained no minutes as it was supposed to and (iii) was contradicted by the facts that the employer was still trading through its website and had a lease with a football club which was still participating in its league. There was no evidence of any actual insolvency and the only reason why there was a negative figure in the draft accounts was because of an inter-company loan which was completely unexplained. This was therefore a classic example of two directors endeavouring to use Victorian company legislation to avoid paying a due debt with the (unusual) connivance of the employer’s solicitors.

 

THE FULL TEXT OF THE JUDGMENT OF COULSON J

 

  1. These are two applications by the claimant, Bernhards Sport Surfaces Ltd against Astrosoccer4u Ltd, arising out of a dispute in connection with a football pitch at the Whyteleafe Football Club in Surrey.

 

  1. The first in time is Bernhards' application to enforce the adjudicator's decision made in July against Astrosoccer4u. The second application is an application by Bernhards to be allowed to continue with the enforcement proceedings as a result of the notice of intention to appoint and administrator which was served after close of business by the defendant on 1st September 2017.

 

  1. Although that is the main focus of today's application, it does seem to me that it is sensible by way of background and for the purposes of clarity, to start with the question of the adjudication. It is unnecessary for me to set out the detail of the toing's and froing's in the adjudication itself.

 

  1. In a decision dated 12th July, Mr. Blisard, the adjudicator, issued an award in favour of Bernhards in the sum of £175,962.47, inclusive of VAT and interest to 12th July. The claim in the adjudication was a claim for payment and there was a valid payment notice. It is agreed that there was no pay less notice, accordingly, notwithstanding all the detail which was provided to him, the adjudicator concluded that the claimant, Bernhards, was entitled to the sum claimed.

 

  1. That is important, because although in subsequent correspondence and, indeed, in subsequent evidence, Astrosoccer4u have referred to alleged defects in the pitch, that was not a matter which they raised by way of a pay less notice, it is therefore, as a matter of law, not a matter which the adjudicator was entitled to consider and it is therefore not, again as a matter of law, something which could interfere with or affect in any way the enforcement of the adjudicator's decision.

 

  1. I do not know what legal advice Astrosoccer4u had prior to the involvement of Mr. Hussein, but for reasons which I will come to, I have some doubt about the propriety and, wisdom of some of that advice. If Astrosoccer4u had been properly advised at the time of the adjudication or immediately thereafter, they would have known that it was open to them to make a separate claim in respect of any alleged defects in the pitch, but that that did not and could not affect their primary liability to pay the sum found by the adjudicator.

 

  1. "Pay now and make a separate claim for something that was not in the adjudication" is the mantra the Court of Appeal have made plain this court has to adopt. The decision in Royal Davenport Dockyard v Carillion [2005] is crystal clear on that point. Accordingly, the sum found by the adjudicator is and always was due and payable by Astrosoccer4u to Bernhards.

 

  1. Accordingly, subject to the question of permission to continue with these proceedings so that that point could be confirmed by the court, there is nothing else left in these proceedings. Accordingly, I then turn to whether or not I should permit these proceedings to continue so that judgment for the sum, plainly and obviously can be entered.

 

  1. My attention has been drawn to my judgment earlier this year in a case called South Coast Construction Limited v Iverson Road Ltd [2017] EHHC 61 (TCC). That case had a number of similarities to this one (and I shall come back to those in a moment). In my judgment I set out the relevant parts of schedule B1 of the Insolvency Act, 1986 and I also identified the relevant principles derivable from the well-known case of Atlantic Computer Systems PLC [1992] CH 505 as well as AES Barry Limited v TXU Europe Energy Trading [2004] EWHC 1757 (Ch) and Ronelf.

 

  1. Ultimately, the principles are well-known. It is for the party seeking permission to continue who has the burden of demonstrating that that is what the court should do. Questions of proprietary interest are very important, so too are questions of conduct and, so too are what stages the court proceedings have reached.

 

  1. In that case, I said, because of the nature of adjudication, that proceedings which were issued to enforce the decision of an adjudicator are exceptional because they are proceedings which, in the vast majority of cases, are obviously bound to succeed because of the principles of enforcement to which I have previously referred.

 

  1. In South Coast, I gave the necessary permission. There were a number of factors which pointed to that. The fact that the proceedings were, effectively, at their end because all that remained was the judgment to enforce; the fact that the decision would not frustrate the administration process: the fact that there was not a risk of undue or unfair preference: and the fact that there had been adjudication proceedings and various aspects of conduct, all pointed towards giving permission.

 

  1. Mr. Hussein has made very clear and measured remarks as to why at least some of those factors are different here. Save for one (to which I shall return), I do not consider that the factors are different. It does seem to me that all of those same points apply again. There would not be a frustration of the administration process; there had been an adjudication; that we were at the end of the proceedings here; and that there was no risk of unfair or unreasonable preference if this judgment were entered.

 

  1. One area where I consider the position to be different to that in South Coast concerns conduct. I made some observations about the conduct of Iverson Road which did seem to me to suggest that the defendant was an element of playing fast and loose with the system.

 

  1. In the present case, I am in no doubt whatsoever, on the basis of the material before the court, that the notice of intention to appointment an administration is entirely bogus and therefore, whatever criticisms I made in South Coast, are nothing compared to the criticisms which are applicable here.

 

  1. Before dealing with the particular matters of conduct which I take into account in reaching my decision, I make plain that, for the avoidance of doubt, none of this involved Mr. Hussein because he was only instructed last night, and these were all events which occurred during August of this year.

 

  1. The particular points of conduct I shall simply number. One, on 8th August, Mr. Coote, a director of Astrosoccer4u telephoned a representative, Mr. Taylor, of Bernhards. During that conversation, Mr. Coote expressly indicated that the claim - the debt - the sum found due by the adjudicator - was, indeed, due. In my view, whilst that might be regarded as a statement of the obvious, it was a clear admission to that effect so therefore, what Mr. Coote should have been doing, was indicating that the money would be paid by a certain date or would be paid in stages or whatever it might be. Having made that admission, there was no proposal for payment whatsoever.

 

  1. Two: thereafter, on 18th August, the solicitors, Keystone Law who had acted for Astrosoccer4u in the adjudication, wrote to the solicitors acting for Bernhards in pursuit of an attempt to mediate. This, of course, is in the light of the fact that there is a sum, undisputedly, due to Bernhards. The letter says:

 

"Your client faces the following, one, mediate in the next seven days and stand some prospect of securing some payment. Two, if not, our client will enter an insolvency process prior to the hearing and your client will then face a claim from the insolvency practitioner in respect of the defects to the pitch."

 

  1. The response from Mr. van Gelder, Bernhards' Solicitors, pointed out that this was, at least potentially, evincing an intention to use the Insolvency procedures as an abuse of process or, at the very least, amounted to actively trading whilst insolvent. It seems to me that is a fairly mild response.

 

  1. The aggressive tone of the letter of 18th August is one thing, but the content is, I think, a clear threat that unless the claimant embarks on a course of action which does not involve him getting his money, the Insolvency procedure will be used. On the face of it, that is unlawful.

 

  1. Three: having received Mr. van Gelder's measured response, Keystone Law wrote again later on 18th August which said, "You will get nothing then. Goodbye". That was breathtakingly rude and was, plainly, part of the intention to misuse the Insolvency proceedings.

 

  1. That was confirmed by event Four, which was an email sent by Keystone Law to their client, Astrosoccer4u, but which was deliberately copied to Mr. van Gelder. That said, "Suggest you file the NOI to appoint so they can't get a charging order in front of other genuine creditors. I will do the claim against them on a CFA for the IP". That was further confirmation of the abuse of the Insolvency rules. The anger and aggression is plain from the text. It is, I imagine, a breach of the rules relating to the proper conduct of solicitors.

 

  1. Event Five was a letter of 21st August from Mr. Endersby, one of the directors of Astrosoccer4u and somebody who has sworn witness statements in this case. This enclosed a draft notice of intention to appoint an administration, but it was clear that the defendant had no intention of serving that notice, because the letter made plain that it was being provided in draft so that further pressure was being put on the claimant to withdraw the court proceedings and agree to meet to discuss a settlement. That was not a bona fide notice of intention to appoint an administration. It was part of the threats.

 

  1. The defendant company then embarked on various measures to restructure themselves, again in the hope of avoiding paying this legitimate debt. Thus, on 29th August, event Six, they entered into a legal mortgage with Formark Scaffolding, which secured property held by the defendant. Formark is a wholly owned subsidiary of MEC2 Limited which, at the time, was the company with significant control over the defendant. It does not appear that the defendant obtained any lending from the mortgage and it looks as if this transaction was merely designed to place Formark as a secured creditor with precedence over the defendant's assets and control over the sale of the defendant's property.

 

  1. Event Seven was the completion of a fresh NOI which looks as if it was lodged on 31st August in the Companies Court here in the Rolls Building. There is no evidence that it has ever been filed at Companies House, and Mr. Hussein's instructions did not include any reason or explanation for that. That was, as I have said, plainly part of the defendant's endeavours to avoid this hearing or judgment being given at this hearing.

 

  1. Event Eight involved a notice dated 31st August, by which MEC2 Limited ceased to be the party with significant control over the defendant and being replaced by an entirely new entity, Surrey Stadium Limited, whose directors and controllers were again, Mr. Coote and Mr. Endersby. On 1st September, event Nine, the defendant changed its registered office.

 

  1. As I have said, all of these events were part of an attempt to avoid this debt. I regard them, as a completely bogus series of events, endeavouring to prevent the debt being paid. The NOI is, of itself, defective because it contains no minutes as it is supposed to. As I have said, it has not been filed with Companies House. It is also contradicted by the fact that the defendant is still trading through its website. It is also contradicted by the fact that the defendant has a lease with Whyteleafe Football Club which is still participating in its league.

 

  1. In my view, in addition to all of that, standing back, there is no evidence of any actual insolvency. Having looked at the financial records, it is plain that the only reason why there is a negative figure in the draft accounts is because of an inter-company loan which is completely unexplained.

 

  1. Accordingly, on the face of all that, this is a classic example of two directors endeavouring to use Victorian company legislation to avoid paying a due debt. That, of itself, is (regrettably) not unusual. What is unusual here, in my judgment, is the connivance of Keystone Law.

 

  1. For all those reasons, the conduct in this case is far, far more serious than the conduct in South Coast and for all those reasons, it follows that a fortiori (as per the reasoning in South Coast), I should give the necessary permission here.

  2.  Having granted the necessary permission, for the reasons given at the outset of my judgment, I then enter judgment on behalf of the claimant, Bernhards, in the sum of £175,962.47 together with interest (figure to be provided) and £8,000 relating to the adjudicator's fees which the claimant has paid but for which the defendant is liable.