REUTERS | Alexander Demianchuk

A CVA “Get out of jail free” card for responding parties in adjudication?

Christmas is approaching and for many of us that means it’s the time when board games are dusted off and some serious competition begins. I confess that I’m more a Trivial Pursuits than Taboo man, mainly because I’m normally hopeless at guessing what other people are trying to describe, and when it’s my turn I always end up saying one of the outlawed words. That said, I don’t mind a bit of Monopoly, provided I don’t end up with Old Kent Road (no disrespect to those of you south of the river). You can buy train stations, a water works, park for free and even go to jail – and then get out again using your “Get out of jail free” card.

Having read Akenhead J’s judgment in Westshield v Whitehouse, responding parties might now have their own “Get out of jail free” card when trying to resist enforcement of an adjudicator’s decision when the referring party is in a CVA.

Westshield v Whitehouse

In a nutshell, Mr and Mrs Whitehouse employed Westshield to carry out sub-structure works at their house. Westshield’s works finished late and it claimed additional sums for variations and delays. The Whitehouses paid about £371,000, but there were continuing issues between them over the final sum due. Before that issue could be sorted out, Westshield’s CVA came into effect. According to the judgment, Westshield owed about £4.4 million but had identified £1.8 million of retentions and disputed monies said to be due to it. The Whitehouses were not identified in the CVA and their alleged counterclaim for negligence and defects was not referred to.

In 2011, shortly after the CVA was approved, Westshield submitted a claim to the Whitehouses for £270,000. Nothing happened and, in March 2013, Westshield served a notice of adjudication, claiming £279,956 (the parties’ contract contained an adjudication clause).

After the adjudicator was appointed, the Whitehouses raised for the first time the alleged counterclaim for negligence and drainage defects at the property. Although an exact value was not put on the counterclaim, the Whitehouses referred to the set-off clause in the CVA conditions (condition 23) and noted that the CVA supervisor would need to set off any amounts due from them against any amounts due to them, assuming the relevant debts arose out of mutual dealings.

The adjudicator decided that £132,667 was due to Westshield, which the Whitehouses did not pay.

When the matter came before Akenhead J on enforcement, the Whitehouses resisted it, arguing that (among other things), as a result of the CVA, even if the adjudicator’s decision was binding, that only established a debt owed by the Whitehouses to Westshield. Under the CVA, the CVA supervisor then had to consider their counterclaim to establish whether any net sum was payable to or by Westshield.

This argument was enough to prevent Akenhead J from granting summary judgment.

CVA no bar to adjudication

I think Akenhead J’s comments that the existence of a CVA does not act as a bar to adjudication (paragraph 23, judgment), are quite useful, particularly for adjudicators. Given many adjudicators’ backgrounds, their knowledge of insolvency law will often be quite limited. When faced with a jurisdictional challenge based on one or other party being insolvent, there can be a bit of head scratching. This clarifies one more point for them.

The “Get out of jail card”

The judgment also gives defendants (like the Whitehouses) an “out” (their “Get out of jail card”, if you will).

This case may turn on its own facts; after all, it is unlikely that many creditors will have failed to put in a claim in the CVA in the same way that the Whitehouses did. Akenhead J described this as Mr Whitehouse taking an:

“… informed decision not to register his possible claim against Westshield… This claim has primarily emerged as a reaction to the adjudication decision.”

However, as Practical Law Construction said:

“… it appears to open the door a small way to allowing a party to avoid the consequences of an adjudicator’s decision if the claimant is in a CVA and the defendant has advanced a claim in that CVA that might potentially be set off against the adjudicator’s decision. It may only be a small chink of light, but that will not stop others seeking to rely on it.”

I think it’s also worth mentioning that, while the decision is undoubtedly correct, it must be somewhat frustrating for Westshield given that the Whitehouses hadn’t raised the counterclaim before the adjudication. Akenhead J described this as:

“… belatedly raised sufficient to assert that they have some sort of bona fide counterclaim for defects and some at least partial challenge to the detail of the adjudicator’s decision.”

The “Get out of CVA card”

Finally, it’s good to see a construction firm that went into a CVA in the recession, seemingly come out strongly the other side, given Akenhead J’s comments about the “strong order book” and the fact that Westshield had paid all the sums due under the CVA. It was interesting to see that these facts alone would have meant that if summary judgment had been granted (which it wasn’t), there would have been no stay of execution.

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