In my December post I asked why an insolvent party would commence an adjudication when, even if it was successful and tried to enforce the adjudicator’s decision, the court would invariably grant a stay of execution. So, why bother one may ask?
The courts recognise that if money is paid over to an insolvent party, the paying party is unlikely to recover that money if it successfully reverses the position in future proceedings. This is why the court may grant summary judgment in favour of the insolvent party but makes it subject to a stay of execution.
Recently, I came across the situation where an insolvent party tried to argue that an adjudicator’s decision was “final and binding” and that monies should be paid over to it, the successful party.
Insolvent party’s “final and binding” arguments
The insolvent party raised three “final and binding” arguments.
Firstly, that the parties’ contract (an NEC3 form of contract) required the parties to adjudicate a dispute before referring it to arbitration. This envisages that arbitration will be the final determination of the dispute and appears to be a non-point. It supports the position that the monies should not be paid over until a final determination is made.
Secondly, the insolvent party argued that the adjudicator’s decision was enforceable as a matter of contractual obligation. Again, it is hard to see how this would avoid a stay of execution.
If the decision was enforceable in this way, the insolvent party could pursue a breach of contract claim against the paying party. It would be asking the court to require the paying party to put it back into the position that it would have been in had the breach of contract not occurred (i.e. to pay the amount of the adjudicator’s decision). This is a circular argument. The insolvent party would be in the same position even if it succeeded in the breach of contract claim because the paying party would resist the enforcement by requesting that the court order a stay.
Thirdly, the insolvent party argued that the adjudication was, in effect, run as an arbitration even though these are two entirely different dispute resolution processes. Adjudications are conducted within tight timescales and are perceived to be a type of “rough justice”, whereas arbitration is a more formal process (the parties have more time to present their pleadings and submit evidence). In my view, the fact that the parties’ contract envisaged that the dispute should be finally determined by arbitration acknowledges this very difference. Again this argument goes nowhere – the stay of execution cannot be avoided.
Straw Realisations v Shaftsbury House
In my example, the insolvent party was prevented from arguing that the adjudicator’s decision was final and binding because the responding party served a notice of arbitration within the contractual time period. If it had not done so, and the time period had lapsed, this would have entitled the insolvent party to argue that the adjudicator’s decision was final and binding.
This is similar to what happened in Straw Realisations (No 1) Ltd v Shaftsbury House (Developments) Ltd. Here the parties’ contract provided that an adjudicator’s decision would be final and binding unless, within three months of his decision, one of the parties served a notice referring the dispute for final determination by legal proceedings.
The issue was whether the adjudicator’s decision had become “final and binding”. Did bringing the same matter into court proceedings by way of defence and counterclaim to an existing action before the decision was issued (not before the expiry of three months from the decision) mean that the adjudicator’s decision was not final and binding?
The court held that the adjudicator’s decision was final and binding because the defence and counterclaim were served before the adjudicator had issued his decision. A document served before the decision could not be classed as a notice under the contract that the decision was being disputed. That said, even though the decision was held to be final and binding, a stay of execution was granted by the court.
Where does this leave solvent and insolvent parties?
Taking this and my December post into account, I think we come to one conclusion. When an insolvent party commences an adjudication, the solvent party will normally end up picking up the tab for the adjudicator’s fees (regardless of who wins) and, if successful, the insolvent party will still be out of pocket in any event due to the court imposing a stay of execution on any summary judgment.
It does raise the question of why an insolvent party would bother with a process that it can’t win.