Straw Realisations (No 1) Ltd v Shaftsbury House (Developments) Ltd

A contractual insolvency or set-off provision cannot override the obligation to comply with an adjudicator’s decision. Where the successful party enters administration, the enforceability of the decision depends on whether it remains provisional or has become final and binding, and whether statutory insolvency set-off has been triggered.

A provisional decision will ordinarily not be enforced by summary judgment where the successful party is in administration and no distribution notice has been given. A final and binding decision may be enforced, although execution may be stayed where payment is unlikely to be recoverable. After administration, the notice requirement for challenging an adjudicator’s decision must be construed commercially.

The claimant sought summary judgment to enforce two adjudication decisions arising from a construction contract. The first decision, in favour of the claimant, was made before the claimant entered administration and no effective challenge notice was served within three months. The second decision was made after administration had begun, and the defendant later communicated that it rejected the administrator’s demand because the award was unenforceable.

The defendant argued that administration, contractual insolvency provisions and insolvency set-off displaced the adjudicators’ jurisdiction or the obligation to pay. It also alleged breaches of natural justice and sought a stay of execution. The central issues were the validity and finality of each decision, the effect of administration, and whether summary enforcement was appropriate.

1. Jurisdiction and natural justice. Mr Smalley’s jurisdiction was established when the adjudication commenced. The subsequent administration order did not retrospectively alter the dispute referred to him. The alleged concealment of the electronic programme was not established, and the adjudicator had confined his reasoning to the parties’ evidence and submissions. There was no breach of natural justice (paras [28]–[34]).
2. Notice under paragraph 23. The claimant’s earlier Defence and Counterclaim could not serve as notice challenging either later adjudication decision. The defendant’s letter concerning Mr Wilkey’s decision did not identify or challenge that decision. Mr Wilkey’s decision therefore became final and binding (paras [35]–[42]).
3. After administration, paragraph 23(2)(a) of the Scheme had to be construed commercially. It was not necessary to give notice of an intention to commence proceedings which could not be brought without permission. It was sufficient to communicate, within three months, an intention to challenge the decision by an appropriate means. The letter of 24 November 2009 validly challenged Mr Smalley’s decision, so that decision was not final and binding (paras [43]–[49]).
4. Insolvency and contractual provisions. The contractual provisions requiring a final account or suspending further payments could not defeat the statutory obligation to comply with an adjudicator’s decision. Statutory set-off under rule 2.85 of the Insolvency Rules 1986 had not been triggered because no notice of distribution had been given (paras [55]–[63]).
5. The court stated that a provisional adjudication decision would not ordinarily be enforced by summary judgment where the successful party was in administration and no distribution notice had been given. A final decision could be enforced, subject to a stay. In liquidation, or where recovery was unlikely, the court could refuse enforcement or grant summary judgment with a stay (paras [89]–[91]).
6. Summary judgment was granted on Mr Wilkey’s final and binding decision, but execution was stayed until further order. The claimant was given leave to apply to lift or vary the stay. Summary judgment on Mr Smalley’s decision was refused and the defendant was given leave to defend (paras [92]–[100]).