Management

Richard Hildrick's Case notes

9 February 2011

Straw Realisations, formerly known as Haymills (Contractors) (in administration) v Shaftsbury House (Developments)

Technology and Construction Court, October 2010

Haymills was the contractor for an £8.5m mixed-use development in Islington, London. The project was completed in April 2009, by which time disputes had arisen concerning Haymills’ entitlement to additional payment in respect of the classification of materials for disposal off-site, and Shaftsbury’s deduction of liquidated damages (LADs) of more than £550,000.

During the course of the project, Haymills had brought an initial adjudication over the excavated materials, and had obtained a decision in its favour, and Shaftsbury had duly paid.

The contract contained an amended version of the Scheme for Construction Contracts, which provided that an adjudicator’s decision would become final and binding, unless one of the parties gave notice of their intention to refer the matter for further legal proceedings within three months of the date of the adjudicator’s decision. In fact, Shaftsbury did issue such a notice within the three-month deadline, and in July 2009 began legal proceedings.

Haymills then instigated two further adjudications. The second claimed for repayment of £50,000 of the LADs and the third for the remaining £500,000 of Shaftsbury’s deduction. By 31 July 2009, Haymills obtained a decision in its favour in the second adjudication for £32,000. However, on 13 August 2009, before this had been paid, Haymills went into administration.

The adjudicator nonetheless continued with the third adjudication and decided on 13 October 2009 that Shaftsbury should repay almost all of the £500,000 in withheld LADs.

The administrators of Haymills sought summary judgement from the court to enforce payment of the sums decided in the second and third adjudications. The court held that the third adjudicator’s jurisdiction was unaffected by the fact that Haymills had entered into administration, because that event occurred after the adjudication had commenced.

However, previous case law has shown that the courts will generally not allow enforcement of an adjudicator’s decision where the party in receipt of a decision in its favour is insolvent. The reason is that, should the adjudicator’s decision later be overturned in court, the winning party would not be able to recover the monies from its insolvent counter-party.

Haymills contended that its particular contract terms, plus the absence of a notice from Shaftsbury on referring the matter to the courts within the three-month window, meant that both adjudicators’ decisions had become final and binding. Therefore it argued that the case law precedents did not apply.

The court agreed with Haymills that the second adjudicator’s decision had indeed become final and binding. However, the judge decided that the third decision had not become final and binding on the basis of a letter issued by Shaftsbury within the three-month window.

Haymills therefore obtained summary judgement of the second adjudicator’s decision but, because it was insolvent, the judge adhered to case law precedent and ordered that no immediate payment would be due to the administrators of Haymills.

Richard Hildrick's analysis

This case highlights the difficulties an insolvent party faces when trying to use adjudication to realise its debts. Even though there was a specific contractual provision in this case, which gave the insolvent contractor an opportunity to obtain a judgement for payment of the adjudicator’s decisions, the court stuck to the line taken in previous judgements.

Thus the position appears to remain that an adjudicator’s decision will only be enforced where it is apparent that the financial position of the insolvent party has not changed from the time when the contract was made, or that the insolvency is significantly due to the other party’s failure to pay the adjudicator’s decision.

The problem of a claimant party becoming insolvent part-way through an adjudication is also highlighted. In such cases, the court’s finding that the adjudicator was correct to continue is likely to increase the cost burden on the other, solvent, party. If it wins the case, it is likely to have to pay all of the adjudicators’ fees and expenses. If it loses, it may avoid paying the decided sum, but would again ultimately have to pay all of the adjudicator’s costs.

Richard Hildrick MCIOB is a quantity surveyor, contracts consultant and adjudicator. Tel: 01347 811155; richard@rjhconsulting.co.uk

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