Ann Wright: Insolvency isn’t always a get-out

Ann Wright FCIOB

Case: Selby Hall & Philip Shivers v Jan Van Der Heiden

Technology and Construction Court, March 2010

It was a simple £143,000 flat refurb. Ms Hall and Mr Shivers hired an architect and signed a JCT Minor Works contract with Mr Heiden, the builder. Work was to start on 21 May 2008 and finish on 22 September. If the builder was late he faced liquidated damages at £700 a week.

By August the claimants, who were in rented accommodation, were anxious about completion. Then Mr Heiden took an unscheduled fortnight’s holiday. On his return he said he would be five weeks late but did not claim for extension of time.

In December, the kitchen and bathroom were still incomplete and defective lighting and flooring and missing joinery were noted. In January Mr Heiden was asked for a completion programme. He responded with a claim for a 10-week extension. Two days later he said the works had reached practical completion. Mr Fletcher, the architect, refuted Mr Heiden’s claims with a list of outstanding works and reasons why the claim was excessive.

The builder’s cash flow had not been restricted. The claimants agreed to pay in advance of the architect’s interim certificates. Until December Mr Heiden had been overpaid and by 8 January 2008 the claimants had paid all sums Mr Fletcher had certified.

On January 7 and 9 Mr Heiden issued an interim application for £170,000. Mr Fletcher replied that the figures were overstated; that Mr Heiden was only entitled to a six-week extension and that liquidated damages would apply from 3 November.

Mr Heiden suspended work on 21 January. After an attempt at mediation failed, Mr Fletcher and the claimants’ solicitors gave Mr Heiden written notice to finish the job. He refused and on 12 March the solicitors determined his contract under clause 6.4.2.

It took replacement contractors until 17 May 2009 to achieve practical completion. Ms Hall and Mr Shivers claimed £56,891.27 for the work plus £20,300 for liquidated damages.

Mr Heiden made a statement in December 2009, but failed to respond to the judge’s directions in February 2010. On 5 March he sacked his legal team. On 10 March, he told the claimants’ solicitors that Rod Jones of Glaiston Jones would act for him. It turned out Mr Jones was an insolvency practitioner.

At 9.30am on the last working day before the hearing, Mr Jones faxed that he was applying for an interim order under section 252 of the Insolvency Act and all legal proceedings must cease. In the afternoon, he faxed that the order had been made in Swindon County Court, so that court would have full control of the situation.

At a hearing on 15 March, the TCC judge decided otherwise and generally found for the claimants.

Analysis

In cases of insolvency, legal proceedings usually cease, other than in the court dealing with the insolvency.

Although Mr Heiden was not present or represented in the court hearings, the judge considered his position based on Mr Jones’ faxes, Mr Heiden’s statement and his QS’s report.

On the jurisdiction argument, the judge found he could continue with the case. He said the insolvency application was a “manipulative, last-minute, high-stakes attempt to avoid the consequences of a [court hearing]” and would encourage those in a “parlous financial state” to wait until the last working day to achieve adjournment of a High Court trial without financial penalty.

In the hearing itself, the judge was careful to ensure Mr Heiden’s point of view was represented, quoting from his statement. This shows both that the insolvency of one party may not be a bar to continuing with the case and the non-appearance of a defendant does not mean the claimant has a walk-over.

Ann Wright FCIOB is an adjudicator and quantity surveyor. 

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