Can security for costs delay adjudication enforcement?
The construction team at Harrison Drury recently acted in the enforcement proceedings in Melton Town Football Club Ltd v Hunts Contractors Ltd on behalf of Melton Town Football Club. Katherine Sibley, partner and head of construction law, and Georgina Mackereth, apprentice solicitor, look at how the court considered whether an application for security for costs should be heard before an adjudication enforcement hearing.
Understanding security for costs
Security for costs is an order mandating the claimant (or the defendant if there is a counterclaim) to deposit funds into court or provide some form of security to guarantee payment of the opponent’s costs if the proceedings are successfully defended.
These orders are only granted in limited circumstances, including where there is a risk that a successful defendant may be unable to recover its costs due to the impecuniosity of the claimant.
Before ordering security for costs, the court will consider the claimant’s financial position, the defendant’s likelihood of successfully defending the claim, and the claimant’s ability to cover the defendant’s legal costs if the court rules in their favour.
Melton v Hunts
Melton appointed Hunts to design, install and construct a new 3G pitch at the club to enable the club to play professional football matches and to develop and grow as a community football team.
Extensive defects were discovered to the pitch and Hunts refused to accept liability for the defects. Accordingly, Melton exercised its statutory right to refer the dispute to adjudication in March 2023 in accordance with the Scheme for Construction Contracts (Scheme) claiming damages comprising the cost of the necessary remedial works and consequential losses.
Melton hoped to obtain a quick resolution of the matter through the statutory adjudication process. The adjudicator ruled in Melton’s favour, ordering Hunts to pay over £900,000 in damages. Hunts failed to pay, prompting Melton to commence adjudication enforcement proceedings.
Hunts resisted enforcement and applied for security for costs on the grounds that Melton was allegedly impecunious, requesting a stay of the enforcement proceedings until the security was provided.
The dispute
The adjudication enforcement hearing was listed for August 14, 2023. Hunts submitted an application for security for costs and requested that the interim application be listed in advance of the enforcement hearing.
Hunts argued that Melton’s financial situation was precarious, with negative accounts, and claimed valid grounds to defend against enforcement with a real risk of non-recovery if Hunts paid the sums awarded by the adjudicator.
Hunts argued that if Melton spent that money on remedial works, then there was a real risk that the club would not have the funds to repay Hunts if the court subsequently overturned the adjudicator’s decision.
Melton argued that the application should not be heard before the enforcement hearing because security for costs undermines the intention behind the adjudication regime. Adjudication was intended to provide fast interim relief so that parties could avoid cashflow issues.
It would be contrary to this intention to obstruct an allegedly impecunious party from enforcing an adjudication decision by requiring it to pay security into court.
If security for costs had been ordered and the club had been unable to pay, the club would have been prevented from recovering the sums awarded by the adjudicator.
Those sums were required to remedy the club’s pitch such that it complied with FIFA and FA requirements and was fit for use. Without remedying the pitch, the club would have been deprived of an income, making its financial position even more precarious.
Decision and key takeaways
The court determined that the application for security for costs was to be listed and heard in advance of the enforcement hearing.
The court acknowledged the inherent tension between the security for costs regime and the principles governing adjudication enforcement.
However, the enforcement hearing would have determined the enforcement proceedings, so it was not appropriate for any application to be heard after that hearing. The parties reached a commercial settlement in relation to the enforcement proceedings.
This dispute is now being litigated in the Technology & Construction Court with Hunts seeking to overturn the adjudicator’s decision and Melton counterclaiming for additional losses.
Had the security for costs application been heard, we consider that security for costs would not have been awarded. Requiring a party to pay security into court before enforcement of an adjudicator’s decision would undermine a core purpose of the statutory adjudication regime: to ensure that claimants can quickly recover sums owed to them before they encounter cash flow issues.
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