Building contract – Dispute — Adjudication – Disputes under building contract referred to adjudication — Decisions of two adjudicators in favour of claimant contractor –Claimant going into administration during second adjudication – Administrators seeking enforcement of adjudication decisions — Whether second adjudicator having jurisdiction – Whether contract precluding enforcement of decisions — Claim allowed in part
The defendant employed the claimant contractor to construct a mixed residential and retail development. The contract was based on the JCT standard form of building contract with quantities 2005 and provided for disputes to be referred to adjudication. The scheme for Construction Contracts was to apply in the event of adjudication, para 23(2)(a) of which provided that an adjudicator’s decision would be final and binding unless, within three months of the decision, either party served a written notice of its intention to refer the dispute for final determination by legal proceedings.
Clause 8 of the contract provided that, if the contractor became insolvent or went into administration, any provisions of the contract that required further payment or release of moneys retained would cease to apply. Two disputes were subsequently referred to adjudication. The first dispute was determined in the claimant’s favour but the defendant failed to pay any of the sums found to be due. While the second adjudication was in progress, the claimant went into administration. That adjudication continued and was concluded in the claimant’s favour, but again the defendant did not pay any of the sums due.
The administrators sought to enforce the two adjudication decisions made in the claimant’s favour and applied for summary judgment on the basis that the defendant had no reasonable prospect of defending the claim. The defendant opposed the application, arguing that it had served written notice on the claimant within the three-month period specified in para 23 of the scheme so that the adjudication decisions were not final and binding. Moreover, the second adjudication decision was invalid because the administration order had been made while it was in progress. The principal issue was whether, by virtue of the administration order and clause 8 of the contract, the defendant was required to comply with the decision of either adjudicator.
Held: The claim was allowed in part.
(1) The second adjudicator had been appointed before the administration order was made so that the dispute referred to him did not include, and could not have included, any dispute that arose as a result of the making of the administration order. He had no jurisdiction to consider the consequences of the administration order because it had occurred after the commencement of the adjudication: Westwood Structural Services Ltd v Blyth Wood Park [2000] EWHC 3138 (TCC) applied.
(2) Paragraph 23(2)(a) contemplated a situation in which each party was solvent and in which the appropriate way of challenging an adjudicator’s decision was to take legal proceedings for a final determination of the disputed matters. The notice aimed to achieve finality unless a party expressed dissatisfaction with it within three months and indicated an intention to challenge it. To require the service of such a notice, after a party had become the subject of an administration order, would be to require the other party to give notice of an intention to take action that it had not been entitled to take without the permission of the court and that it would probably not want to take. That did not make business sense. The only realistic course open to a party in that position would be to resist enforcement of the award on the ground of the insolvency of the other party: Antaios Compania Naviera SA v Salen Rederierna AB (The Antaios) [1984] AC 191 and Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 applied.
(3) The defendant had not served a notice in respect of the first adjudication decision that complied with para 23(2)(a) and the service of the defence and counterclaim did not render such a notice unnecessary. With regard to the second adjudication, the defendant had made it clear in writing that it was rejecting the administrator’s claim based on the second adjudicator’s decision on the grounds that it was unenforceable. Since the defendant’s letter had been served within three months of the decision, it was a valid notice under para 23(2)(a) of the scheme with the result that that decision was not final and binding and was therefore not beyond challenge.
(4) A contractual clause that purported to supersede the obligation to comply with an adjudicator’s decision – in the instant case, the provision for a mutual setting off of the accounts between the parties on the happening of certain events as set out in clause 8.5 and an obligation to pay only the balance and the restriction on any further payments – could not prevail over an obligation to comply with the decision of an adjudicator: Levolux AT Ltd v Ferson Contractors Ltd [2003] EWCA Civ 11; [2003] 1 All ER (Comm) 385 and William Verry Ltd v Camden London Borough Council [2006] EWHC 761 (TCC) considered.
(5) If, at the date of the hearing of the application to enforce an adjudicator’s decision, a party was in administration and a notice of distribution had been served, an adjudicator’s decision would not be enforced. If no notice of distribution had been given, an adjudicator’s decision that had not become final would not be enforced by way of summary judgment. However, if the adjudicator’s decision had, by agreement of the parties or operation of the contract, become final, the decision might be enforced by way of summary judgment, subject to the imposition of a stay: Bouygues UK Ltd v Dahl-Jensen UK Ltd [2000] BLR 522; Melville Dundas Ltd (in receivership) v George Wimpey UK Ltd [2007] UKHL 18; [2007] 1 WLR 1136 and Integrated Building Services Engineering Consultants Ltd t/a Operon v Pihl UK Ltd [2010] CSOH 80 considered.
If a party was insolvent in a real sense, or its financial circumstances were such that if an adjudicator’s decision was complied with the paying party was unlikely to recover its money, or at least a substantial part of it, the court might grant summary judgment but stay its enforcement. A stay of execution would usually be granted unless either that party’s financial situation was the same or similar to its financial situation at the time when the relevant contract was made or its insolvency was due, either entirely or in significant part, to the other party’s failure to pay the sums awarded by the adjudicator: Wimbledon Construction Co 2000 Ltd v Vago [2005] EWHC 1086 (TCC); [2005] BLR 374; Mead General Building Ltd v Dartmoor Properties Ltd [2009] EWHC 200 (TCC); [2009] BCC 510; and Pilon Ltd v Breyer Group plc [2010] EWHC 837 (TCC); [2010] BLR 452 considered.
(6) In the instant case, the decision of the first adjudicator was final and binding and the claimant was entitled to summary judgment in respect of that decision. Conversely, it was not entitled to summary judgment in respect of the second adjudicator’s decision since, although it was a valid, it had not become final because the defendant had issued a valid notice under para 23(2)(a) of the scheme. The defendant would therefore be granted leave to defend in relation to the award of the second adjudicator. This was not a case where the claimant’s insolvency had been brought about by the failure to pay the award since the claimant was put into administration only three days after the first adjudicator’s award had become payable. The litigation commenced against the defendant, which if pursued would have required the court to determine the true position between the parties had been frozen as a result of the administration order and might never be revived. In those circumstances, the court would order a stay of the enforcement of the first adjudicator’s decision until further order.
Marc Rowlands (instructed by Fenwick Elliott) appeared for the claimant; Peter Fraser QC and Serena Cheng (instructed by Haldanes, of Stevenage) appeared for the defendant.
Eileen O’Grady, barrister
