Kier Regional Ltd v City & General (Holborn) Ltd & Others (2008)
Interim third party debt orders would not be made final where the third parties' liabilities to the judgment debtor were in reality contingent liabilities or had not yet been quantified so that no debt was due and owing from the third parties. Even if there had been a debt due and owing, as a matter of discretion the orders would not be made final because that would cause the third parties to go into insolvent liquidation and a hearing to challenge the underlying arbitration award was imminent.
The applicant contractor (K) applied to finalise interim third party debt orders made against the third party companies (C), seeking to enforce a judgment against the respondent property owner (H). H also cross-applied for a stay of execution of the judgment. H was the freehold owner of the relevant property. It had entered into a joint venture agreement with C for the purposes of buying the property, which stated how any profits or losses connected to the development and sale of any parts of the property would be shared between the parties. H had obtained financing for the project from a building society, who had taken a charge over the property. H engaged K to carry out development on the property, but following a number of problems K obtained an adjudicator's award against H for loss and expense in consequence of delays. K obtained summary judgment to enforce the award, although the judge stated that there was a high possibility that the adjudicator had made an error of law. H did not pay the debt, and K obtained a charging order over the property, but as the market value of the property had dropped to less than the amount of the building society's charge K's order was worthless. K claimed that both H and C's most recently filed accounts recorded C as significant debtors to H, with the debts arising from joint venture profits and losses and payments on account. K were granted interim third party debt orders against C and applied to the instant court for it to exercise its discretion under the CPR Pt 72 to make the orders final. H also cross-applied under the CPR Sch.1 Ord.47 for a stay of execution of the summary judgment. In addition, a full arbitration of the entire proceedings, which could overturn the award to K, was scheduled to commence soon after the instant hearing. H submitted that although the sums in question were recorded as debts in the accounts they were in fact only contingent liabilities, and that no debt would be due to it from C until the final account in respect of the development of the property had been resolved. It argued that until that had happened it was not known whether C would owe any money to H by way of shared losses under the joint venture agreement. H also submitted that as a full arbitration was imminent any further steps to enforce the summary judgment should be stayed.
(1) Expert accounting evidence showed that the sums in H and C's accounts were not debts, but were contingent liabilities. In addition, with reference to the construction of the joint venture agreement, it was clear that any profit or loss would not be payable until at least the costs of the building works had been ascertained, and possibly not until after the sale of the development. It was impossible to say whether or not a property developer had made a profit or loss on a project until he could ascertain the cost of the development, therefore any profit-sharing or loss-sharing could not logically take place until after that event had occurred. Further, there was nothing else in the agreement to suggest that profit or loss would be payable on a rolling or annual basis, and there was no evidence of any additional oral contract suggesting otherwise. Therefore, in light of the fact that the final account with K had not yet been finalised so that the cost of the development was not yet known, there was no debt due and owing from C to H, and no final third party debt order could be made. However, even if there had been a debt due and owing, it would not have been appropriate to exercise the discretion under the CPR Pt 72 to make the third party debt orders final, Harlow & Milner Ltd v Teasdale (2006) EWHC 535 (TCC) considered. There would be clear prejudice to C as they would go into insolvent liquidation if the order was made, whilst the judgment debt to which the debt orders would be attached was itself based upon a disputed adjudicator's decision. In addition, an arbitration that would review the whole basis of the adjudicator's decision was imminent, and so it was possible that the debt to K could be overturned. (2) K had already exhausted what were essentially the two options available for enforcing the summary judgment, and it was difficult to see how its position could be improved by taking further steps. Therefore, K was to be refrained from taking any further enforcement proceedings, at least until the arbitration had been concluded.
Application refused, cross-application granted