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Adjudication Enforcement and CVA

3.02.2014

In the case of Westshield Limited v Whitehouse & Another, reported at the end of 2013, the court refused to grant a summary judgment application in adjudication enforcement proceedings because of the Defendant’s claim in the Claimant’s company voluntary arrangement (CVA).

In the case, Mr and Mrs Whitehouse employed Westshield Limited to carry out sub-structural work for a house in Cheshire.  The works finished late and the contractor claimed additional sums for variations and delays. Although Mr and Mrs Whitehouse paid around £371,000 to the contractor there were continuing issues between the parties.

On 7th December 2010 the CVA came into effect having been approved by the majority of the contractor’s creditors, but not Mr and Mrs Whitehouse as they had not been identified as a creditor.  The CVA incorporated various standard conditions which included a set-off clause closely modelled on Rule 4.90 of the Insolvency Rules 1986.

Some months after the CVA was approved, the contractor submitted a claim for £270,000 which Mr and Mrs Whitehouse did not react to.  Adjudication proceedings followed and the Whitehouses raised for the first time a counterclaim against the contractor for negligence and drainage defects.

The Whitehouses relied on the set-off clause in the CVA. The Adjudicator decided that £130,000 was due to the contractor.  The Whitehouses paid the Adjudicators’ fees and not the money awarded to the contractor who started enforcement proceedings.  These were defended on the basis that as a result of the CVA, even if the Adjudicator’s decision was binding, that only established the debt owed by the employer to the contractor.  Under the CVA, the supervisor then had to consider the employer’s counterclaim to establish whether any net sum was payable to or by the contractor.

Akenhead J refused to grant Summary Judgment because of the employer’s claim in the contractor’s CVA

The Judge noted that the CVA was not a bar to an adjudication (a company subject to a CVA can sue and be sued).

This case may turn on its own facts.  It does appear to open the door a small way to allow 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 may potentially be set off against the Adjudicator’s decision.

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