Contracting with a dormant company can be a risky business, as a recent case in the Technology and Construction Court (TCC) illustrates. In WRB (NI) Ltd v Henry Construction Projects Ltd [2023] EWHC 278 (TCC), the court had to decide whether to enforce an adjudicator’s decision in favour of a dormant company against a main contractor who claimed that the company was not the true party to the sub-contract and that it was having financial difficulties.
The background of the case was as follows:
- WRB (NI) Ltd (WRB) was a dormant company registered in Northern Ireland. It was part of a group of companies that included WRB Energy Limited (WEL), an active company that carried out electrical installation works.
- Henry Construction Projects Ltd (Henry) was a main contractor that engaged WEL as a sub-contractor for a development project in London. However, the sub-contract was mistakenly entered into in the name of WRB instead of WEL.
- A dispute arose between the parties over the payment of the sub-contract works. WRB referred the dispute to adjudication and obtained a decision in its favour for ￡120,752.14 including interest as of 13 May 2022.
- WRB applied to the TCC for summary judgment to enforce the adjudicator’s decision. Henry did not resist judgment but sought a stay of execution of any judgment on two grounds: (1) that WRB was not the true party to the sub-contract and that WEL was the real beneficiary of the adjudication; and (2) that WRB was having financial difficulties and there was a real risk of dissipation of the judgment sum.
The court rejected both grounds and refused to grant a stay of execution. The court held that:
- The adjudicator’s decision was valid and enforceable, as the adjudicator had jurisdiction to decide the identity of the parties to the sub-contract and had done so in a fair and impartial manner. The court also found that there was no evidence of collusion or fraud between WRB and WEL, and that WRB was entitled to the benefit of the sub-contract as a matter of law and equity.
- Henry had not shown a real risk of dissipation of the judgment sum, as WRB had given an undertaking to ring-fence the sum in a separate account and not to dispose of it without the court’s permission. The court also noted that WRB was not insolvent or in liquidation, and that its dormant status did not mean that it was unable to pay its debts or that it had no assets.
The case demonstrates the importance of checking the identity and status of the parties to a contract, especially when dealing with a dormant company. A dormant company is one that does not trade and does not have any accounting transactions. It may be used for various purposes, such as protecting a brand name or trademark, or holding the lease or freehold of a property. However, a dormant company can still enter into a contract, as long as it has the legal capacity and authority to do so, and the contract does not involve any significant accounting transactions that could affect its dormant status.
