Razin & Anor hired Indigo Projects London to build a four-storey house for £2,350,000. Disputes arose between the parties relating to the standard of work and delays in completion. The defendants alleged that the work was poorly done, and that it led to defects in the house. In addition, they also argued that they were entitled to liquidated damages for delay as Indigo had failed to reach practical completion at the specified date.
Indigo had issued an interim payment notice for £202,036.05. Razin & Anor disputed these costs but failed to issue a Pay Less Notice in time, in accordance with the contract, and so the sum became due on the final date of payment. The full sum demanded was not paid. Instead the defendants paid £30,000 on account. Indigo then referred the dispute to adjudication. It was decided by the adjudicator that the Defendants were obliged to pay £177,662.72, being the full sum with interest, less the £30,000 paid on account.
The issue arose when the 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 (“CVA”) and Razin said that enforcement would undermine the proper operation of the CVA.
To make a summary judgment for the monies 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. Also if the decision was enforced, Razin would only receive a few pence in the pound from the CVA.
The argument of Indigo was that the adjudication award should be enforced first since it pre-dated the CVA. The CVA would not be undermined because an account could be taken once the payment had been received.
This case 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.
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.”
The main comments on this case is that it highlights the importance for companies in a CVA to determine the claims and counter-claims against it. Enforcement of an adjudication award where the determination of the counter-claims remain outstanding may well ‘distort the process of accounting that is required (as was held to be the case here), and in those circumstances it is likely the court will not enforce the adjudication award.