The selling point of adjudication is its speed and cost effectiveness. If you're owed money, but the debtor won't pay up, you can adjudicate and may well obtain a decision saying that the debtor owes you £X. If the debtor still refuses to pay you can take the adjudicator's decision to court and the court will usually enforce it quickly. That way, you have a judgement debt in your favour that you can use to get your money. The only snag, however, is if the debtor isn't good for the money.
What to do? One option is to seek a "third party debt order". This is where the court orders a third party who owes money to the debtor to pay that money (or the relevant part of it) to the creditor instead. In a recent TCC case a contractor who was successful in an adjudication sought a third party debt order from companies it thought owed a substantial amount of money to the employer. The TCC did not grant the third party debt order, but this was primarily because the contractor could not establish that the third parties actually owed money to the employer. A third party debt order will only be made if there is a debt which is presently owing, not a debt that may be payable at some time in the future.
Where a debt is presently owing the court has a broad discretion as to whether it will order a third party to pay money directly to the judgment creditor.
- One factor the court will consider in exercising its discretion is whether the third party would suffer real prejudice were the order to be made. In many cases there will be no real prejudice in a third party debtor paying party A instead of party B. A third party debt order could well be made in those cases. If, however, there is real prejudice (as there was in this TCC case), a third party order may be refused
- On the other hand, where a judgment debtor (e.g. the employer) goes into liquidation, the court will not usually make a third party order, as this would give the judgment creditor (e.g. the contractor) an unfair preference over the other creditors of the judgment debtor
The UK has no specific legislation that allows a contractor to make a claim on money owing to the employer, or to claim a charge over the owner's land until it is paid. Other countries do have such legislation, which works with varying degrees of success.
As the clamour for cash is heightened with the downturn in the economy, legal routes to recovery such as adjudication and in turn third party debt orders should be used increasingly. Watch this space for further third party debt applications.
Reference: Kier Regional Ltd v City & General (Holborn) Ltd (No.2) [2008] EWHC 2454 (TCC)
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 23/10/2008.
