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Last edited 17 Oct 2022

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Najma Dunnett Other Consultant

FG Skerritt Ltd v Caledonian Building Systems Ltd

FG Skerritt Ltd v Caledonian Building Systems Ltd [2013] EWHC 1898 (TCC)

The 2013 case of Westshield v Buckingham related to the provision by Westshield Ltd of a guarantee to provide security for repayment of sums that may be due from Westshield Civil Engineering Ltd to Buckingham Group in subsequent proceedings and that that might have persuaded the court not to grant a stay of execution against Westshield.

In the case of FG Skerritt v Caledonian Building Systems, a similar situation arose in that the claimant, FG Skerritt became insolvent but a stay of execution contended for by the defendant, Caledonian Building Systems Ltd, was refused on the basis of the provision of a parent company guarantee by the claimant.

The defendant (the main contractor) engaged the claimant as its subcontractor to design and build the mechanical and electrical systems on a prison project. The form of subcontract was the DOM2 standard form dated 22 May 2009 with a contract price of £1.8m.

A dispute arose concerning the claimant’s invoice which the defendant refused to pay. The claimant subsequently went into administrative receivership but issued an adjudication notice claiming payment of approximately £214,000 due under invoices issued under the subcontract.

The adjudicator awarded the claimant full payment of its outstanding invoices in the sum of approximately £185,000 and noted the defendant had not served a withholding notice. The defendant wished to counterclaim for the costs of completion of the works and rectification of defects which could not be set off against the claimant.

The proceedings before the Technology and Construction Court (TCC) related to a summary judgment application by the claimant to enforce the adjudicator’s award. The defendant sought a stay of execution of the award on the basis of the claimant’s insolvency and possibility it may not be able to repay sums in subsequent proceedings. One of the issues raised by the defendant was the financial status of the claimant’s parent company MGL in providing a guarantee to avoid granting a stay of execution of the adjudicator’s award.

In respect of the court’s decision as to whether to grant a stay, reference was made by the defendant to the Insolvency Rules 1986 where the defendant submitted that due to the claimant’s insolvency and the defendant’s various counterclaims against it, summary judgment should be refused so that the counterclaims could be dealt with in the liquidation process (Note from Westshield v Buckingham, the factors the court will assess in deciding whether to grant a stay and that where a company is in liquidation a stay is usually granted due to the probable inability of that company to repay sums). The claimant submitted, however, that given its insolvency the matter could be dealt with and summary judgment granted if its parent company, MGL, provided a guarantee to the defendant, to guarantee the repayment of sums.

The judge, Mr Justice Ramsey, considered in the circumstances it was appropriate to grant a stay of execution but that a bond or guarantee provided by a party could be sufficient security for repayment of judgment sums and represent an alternative to a situation where it would normally be appropriate to grant a stay.

The parties engaged in an examination of the financial viability of MGL to provide the guarantee with the judge finding that it is desirable to be provided with all available necessary information regarding the parent’s financial standing but that there was no general obligation to provide confidential financial information to another party to allow it to decide on solvency and whether to apply for a stay.

Mr Justice Ramsey was satisfied as to the financial position of MGL to provide the guarantee in order to lift the stay of execution temporarily granted. The provision of the guarantee would enable summary judgment to be granted to the claimant of the adjudicator’s award.

Whilst this case is yet another demonstration of the court’s support for the adjudication process and potentially overcoming a stay of execution situation, it should not necessarily be seen as a panacea that the provision of a guarantee will always come to the rescue. For a start, parent company guarantees are of course only available to entities with a parent company and one that is financially sound, as otherwise the guarantee will be worthless.

This article was created by construction lawyer --Najma Dunnett as part of an ongoing series of legal articles. Follow Najma on Twitter to keep up to date with the latest changes in construction law @NDunnett_Cons.