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Shaftsbury engaged Haymills to construct a mixed-use residential and commercial development. After completion Haymills went into administration. Prior to the administration, Haymills had been successful in two adjudications.
The contract provided:
(a) that in the event of Haymills’ insolvency, Haymills would not be entitled to any further payment; and
(b) if a party was dissatisfied with a decision of an Adjudicator then that party had to serve a notice of dissatisfaction within three months, otherwise the decision would become final. In respect of the first adjudication, Shaftsbury did not serve a notice of dissatisfaction within the correct time, but it did in respect of the second adjudication.
The central issue was whether the contract provisions on insolvency could supersede the intention of parliament that Adjudicators’ decisions should be honoured – “pay now, argue later”.
The judge put forward the following relevant principles:
- A contract clause that purports to supersede the obligation to comply with an Adjudicator’s decision cannot prevail over an obligation to comply with the decision of an Adjudicator;
- If at the date of an enforcement hearing, the successful party is in liquidation or was the subject of the appointment of administrative receivers, subject to limited exceptions, then the decision will not be enforced;
- If a party is in administration or a notice of distribution has been given, an Adjudicator’s decision will not be enforced;
- If a party is in administration, but no notice of distribution has been given, an Adjudicator’s decision which has not become final will not be enforced by way of summary judgment;
- If the circumstances are as in 4 above but the Adjudicator’s decision has become final, the decision may be enforced by way of summary judgment, (subject to a stay of enforcement);
- There is no rule of English law that the fact that a party is on the verge of insolvency triggers the operation of bankruptcy set-off. If a party is insolvent in a real sense, or its financial circumstances are such that if an Adjudicator’s decision is complied with, the paying party is unlikely to recover its money, or at least a substantial part of it, the court may grant summary judgment but stay the enforcement of that judgment.
In this case, the question of whether an Adjudicator’s decision had become final or not, was determined by the existence of a notice of dissatisfaction. Therefore, the judge decided that the decision in the first adjudication was final, but the decision in the second adjudication was not. Accordingly, Adjudication 1 was enforced, but Adjudication 2 was not.
However, the judge decided that it was appropriate in this case, to order a stay of enforcement of the decision in the first adjudication, as Haymills was so heavily insolvent that it would have gone into administration regardless of the payment of the award.