Pre-contract due diligence: the court's approach

The recent Technology and Construction Court judgment in WRB (N.I.) Limited (''WRB'') v Henry Construction Projects Limited (''HCP'') [2023] warns that parties who fail to carry out financial checks on parties they are contracting with proceed at their own risk. Adjudication decisions will be enforced if the other party's financial circumstances are similar to when the parties contracted.  

The case

HCP engaged WRB as a sub-contractor to design and commission M&E health systems at a development in North London. WRB was at all material times a dormant company.

A dispute crystallised between the parties regarding the value of WRB's interim payment application, and WRB served a notice of adjudication upon HCP regarding its true value.  Finding in WRB's favour, the adjudicator ordered HCP to pay WRB an additional sum plus interest, VAT, and the adjudicator's fees.  

Following HCP's failure to comply with the adjudicator's decision, WRB issued court proceedings against HCP to enforce the adjudicator's decision and simultaneously applied to the court for summary judgement. 

By cross-application, HCP requested a stay of execution (to resist enforcement).  HCP argued that it had its own crossclaim against WRB, which it intended to pursue, and WRB's status as a dormant company meant it was highly probable that any sum paid to it could not be repaid if HCP should succeed in its crossclaim.

The court's decision

The court enforced the adjudicator's decision by granting summary judgment in WRB's favour and dismissing HCP's application for a stay of execution.  In doing so, it cited the relevance of previous observations made in Herschel Engineering Ltd v Breen Property Ltd [2000] regarding a company's failure to undertake proper due diligence:

''it is very easy (and prudent and relatively inexpensive) to carry out a search or obtain credit references against a company whose financial status and standing is unknown. Not to do so inevitably places a person at a significant disadvantage. It only has itself to blame if the company selected by it proves not to have been substantial"


The court's decision in this case affirms the following principles previously laid down in Wimbledon Construction Company 2000 Ltd v Vago [2005] as 'good law' when it comes to illustrating the court's approach to the enforcement of adjudication decisions:

  • Adjudication is designed to be quick and inexpensive; decisions are intended to be enforced summarily and a party should not (generally) be kept out of its money;
  • In an application to stay the execution of summary judgement regarding an adjudicator's decision, the court must exercise its discretion with the above principle firmly in mind;
  • The probable inability of a party to repay the sum awarded may render it appropriate to grant a stay (and one will usually be granted in the event of insolvency); and
  • If a party's financial situation suggested it may be unable to repay the judgment sum, it would not usually justify granting a stay if:
  1. its financial position is the same or similar to its position when entering the contract with the other party; or
  2. its financial position is due (wholly or in part) to the other party's failure to pay sums awarded by an adjudicator.

This judgment stresses the importance of completing due diligence at the outset. Clearly, any failure to do so will prevent a party from getting out of the proverbial bed that was made upon entering contract. 




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