Adjudicator decision not enforced after successful party enters CVA

Out-Law News | 16 Jul 2019 | 10:20 am | 2 min. read

The Technology and Construction Court (TCC) has refused to enforce an adjudicator's decision where the successful party subsequently entered into a CVA. The adjudicator's decision did not resolve all the issues between the parties; it was on a narrow point relating to non-payment of interim sums due under a construction contract. In contrast the CVA incorporated the insolvency set-off rules, which once applied would determine the net account between the parties.
  • The successful party to an adjudication which does not resolve all the disputes between the parties cannot then enforce that decision if it subsequently enters into a CVA.
  • If insolvency set-off rules are incorporated into a CVA those rules will apply.
  • Indigo Projects London Ltd v Razin and another [2019] EWHC 1205 (TCC)

Indigo Projects London Ltd (Indigo) and Razin entered into a construction contract in April 2017. In November 2018, Indigo commenced a successful adjudication in respect of non-payment of sums due by Razin under a construction contract to build residential property in Kingston-upon-Thames, Surrey.

Razin did not pay and in January 2019, Indigo sought to enforce the decision against Razin in the courts. However, in February 2019, Indigo entered into a CVA with its creditors. The CVA contained provisions equivalent to the insolvency set-off rules. This meant that the effect of the CVA was to create a net account between Indigo and Razin as to the sums owing in either direction.

Regardless of the CVA, Indigo sought to enforce the adjudicator's decision. The TCC refused to allow the enforcement. In doing so, the court confirmed that the adjudicator's decision only related to a narrow issue of non-payment of an interim application under the contract between the parties. It did not resolve all the disputes between the parties; it did not assess the work carried out and did not decide all the claims and cross claims between the parties.

As a result, the court said that whilst the interim payment should be taken into account in determining the net account under the terms of the CVA, it should not be paid in full by Razin. If Razin made the payment it would be paid into the general pool used for the benefit of all of Indigo's creditors, and not just Razin. If Razin was to subsequently litigate or refer the matter for a final determination and win, it would not necessarily obtain full repayment of the sum it had paid to Indigo. This outcome would prejudice Razin.

It is open to Indigo in the future to pursue formal litigation to resolve all claims between the parties and if successful, enforce a binding judgment against Razin. However, in the context of financial distress, this will be a much less attractive option than seeking a quick win by enforcing the adjudicator's decision.

This case was distinguished from the decision of Cannon Corporate Ltd v Primus Build Ltd [2019] EWCA Civ 27 from earlier this year, in which even though Primus was subject to a CVA, the Court of Appeal said that it would have enforced the adjudicator's decision.

In Cannon v Primus the adjudicator's decision was made after the date of the CVA, whereas in Indigo the adjudicator's decision and the application to enforce that decision were made before the date of the CVA. The distinction is important given that if the court in Indigo had allowed the adjudicators decision to be enforced, Razin would have had to pay the awarded sum after Indigo became subject to the CVA. These monies would then be paid into the general pool of funds available for distribution amongst Indigo's creditors, which would prejudice Razin. However, as Cannon v Primus was a Court of Appeal decision, it will be interesting to see whether this distinction holds and other cases seek to follow Indigo or defer to the decision in Cannon v Primus.

Andrew Robertson is a restructuring expert at Pinsent Masons, the law firm behind Out-Law.com.