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Relations between contractor Makers UK and Camden council had become strained, said the judge. The 拢4m social housing contract on the Whittington Estate in Highgate has gone ever so sour. Even more concerning, Makers was in financial straits, or in the judge鈥檚 words, 鈥渋nsolvent in the sense that it cannot currently pay its debts鈥�. That is not Camden鈥檚 fault. But as Camden has slung Makers off the contract and into the middle of exciting legal consequences, it seems that whether it wins or loses, Camden will be taking a cold bath. Let me tell you the story.

When Makers and Camden鈥檚 tender courtship blossomed into a building contract in 2005, Makers was in a fair financial state. The job started in October that year. Soon, sadly, there was a falling out over variations and delays. Nothing remarkable there. Camden became fed up with Makers鈥� performance and formally accused it of 鈥渇ailing to proceed regularly and diligently鈥�.

It formally warned it to get its act together within 14 days, then finally decided that it hadn鈥檛 done so and would have to be turfed off the project. Doing all that is a tricky strategy, believe me, and Makers politely told Camden that it was talking through its hat. It repeated that opinion to the adjudicator who was now in their midst. This same adjudicator decided that Makers had indeed been falling short of the mark, but that by day 14 of the notice had pulled itself together. So Makers was not in serious default and therefore Camden had been wrong to boot it off; worse still for Camden, he decided that Camden had improperly ended the contract.

Camden formally warned makers to get its act together, then decided it hadn鈥檛 and turfed it off the project. Makers told camden it was talking through its hat

鈥淐amden was and remains wholly dissatisfied with the decision of the adjudicator, which it considers went against the weight and sense of the evidence that was before him,鈥� the council said. Camden was peeved enough to begin an action in the High Court to prove that the true culprit was Makers after all, and that the firm should pay it 拢1m compensation.

So far, so complicated for Camden 鈥� but what of that cold bath? Makers鈥� balance sheet for the year ending 2007 shows a deficit of 拢10m. Its profit and loss for that year knocks a hole in 拢11m. Worse still is that in Makers鈥� 2007 accounts it said: 鈥淜eller Group, the company鈥檚 ultimate parent, announced its decision to withdraw from the Makers UK business.鈥� Keller is a very big creditor to its own firm. Moreover, it has an eye on the 拢4m counterclaim launched against Camden. That trial is coming on in November.

There is now, as ever, a 鈥渂ut鈥�. Camden spotted that Makers could immediately begin a second adjudication 鈥� and claim that 拢4m now. Camden feared that any sum awarded would be irrecoverable if, and when, it won. So, the parties found themselves in front of Mr Justice Akenhead, with Camden arguing that Makers ought to be prevented from calling for a second adjudicator.

There is now, as ever, a 鈥榖ut鈥�. Camden feared that any sum awarded would be irrevocable if, and when, it won

Let鈥檚 be clear. The court has absolutely no power to prevent Makers from pursuing an adjudication. The first adjudicator binds not only the parties but also the next adjudicator. And since the first fellow decided that Camden improperly terminated Makers鈥� employment, the second adjudicator only has to decide on damages.

Camden鈥檚 chance to argue that the next adjudication should be blocked arose because of an administrative oversight. And it is a brave argument. But courts are not places of sympathy. They are places for rules. The judge would not block Makers. They were allowed to call for an adjudicator to argue for immediate payment of hefty damages for the wrong done them, as the first adjudicator said in the first place.

So, if Makers comes to a second adjudicator and is awarded a wad of cash, will the court enforce payment, given Makers鈥� financial condition? The answer is no, if the 鈥渨inner鈥� is indisputably insolvent. But what if there is merely a likelihood that the winner will not be able to repay if a court or arbitrator orders repayment? The answer is yes, it will enforce if the claimant鈥檚 financial position was caused by the defendant鈥檚 failure to pay the sums awarded, or today鈥檚 financial position is no different to when the contract was formed. That water is cold indeed.

Credit: Simone Lia