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Saturday, 1 June 2019

Indigo Projects London Ltd v Razin & Anor

[2019] EWHC 1205 (TCC) 

This application for summary judgment to enforce an adjudicator’s decision was resisted because, since the date of both the decision and the application to enforce it, Indigo had entered into a Company Voluntary Arrangement (“the CVA”) and Razin said that enforcement would undermine the proper operation of the CVA. 

Previously, in 2013, in the case of Westshield Ltd v Whitehouse & Anr [2013] EWHC 3576 (TCC), a slightly different situation had arisen. Having decided to seek and enter into a CVA, in March 2011, Westshield commenced an adjudication against the Whitehouses and were awarded £130k. The Whitehouses did not pay and instead filed a claim against Westshield with the Supervisor. On enforcement, the Judge decided that the adjudicator’s decision was binding but declined to order summary judgment. 

Instead he decided that proceedings should be stayed pending the outcome of the Supervisor’s account. In doing this, the Judge left open whether, following the accounting exercise, Westshield might issue a further summary judgment application.

The adjudication in question here, was about payment of a sum stated in a Payment Notice where Razin had failed to serve a Pay Less Notice. It was not a decision representing any valuation of Indigo’s claim after taking into account any cross-claims made by Razin. 

Indigo’s application for summary enforcement was issued on 24 January 2019. By a letter dated 8 February 2019 notice was given to the recipients of a “virtual” meeting which was to be held on 28 February 2019 in order to approve the CVA proposal. Clause 7 of the CVA Terms dealt with mutual set-off.

Indigo said that since the adjudication award pre-dated the CVA, the award should be enforced first, with the accounting exercise under the netting-off provisions to follow. Alternatively, the award could be enforced in part, as an initial step under the accounting exercise, to the extent that Razin had not been able to reduce the sum due by reference to quantified alleged counterclaims. 

Razin’s position was that it was an express term of the CVA that the supervisors were to take account of the sums claimed and counterclaimed between Indigo and each of its creditors, and this was the exercise that was required to be carried out as between Indigo and Razin. Given that Razin’s cross-claims had not been determined, they would have to be considered for the first time by the supervisors in the CVA. To enter judgment for the sum awarded by the adjudicator would result in the CVA supervisors having to distribute that sum amongst the other creditors. This would interfere with the CVA supervisors’ exercise of taking an account as between Indigo and Razin. Further, if the decision was enforced, Razin would only receive a few pence in the pound from the CVA. 

This case and situation was different from others because the CVA in this case was entered into after the adjudicator’s decision and the application to enforce it. Sir Anthony Edwards-Stuart also thought that it was relevant that the decision of the adjudicator was not a decision on the merits of one party’s case, or part of its case, but a decision based solely on the failure to serve a Pay Less Notice. This meant that if that decision had been complied with, the effect in a subsequent resolution of the entire dispute would have been that the payment would have been treated as an interim payment on account. 

The key issue for the Judge was that the effect of the adjudicator’s decision, which created a debt that arose before the CVA was entered into and which, if paid prior to the CVA, would have to be taken into account as part of the netting-off exercise, was, under the rules of the CVA, quite different from the effect of a payment of that sum to Indigo after the CVA had been entered into. The latter would go into the general fund for the benefit of the creditors as a whole, rather than being taken into account as part of the exercise of drawing up the balance of the dealings between Indigo and Razin. 

Sir Anthony Edwards-Stuart said that:

“To order the Defendants to pay, after the CVA has been entered into, the sum determined by the adjudicator would, in my judgment, distort the process of accounting that is required under the CVA because the money would not be applied for the sole benefit of the Defendants but instead for the benefit of the creditors generally.”

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