Perseverance, dear my lord
Keeps honour bright: to have done, is to hang
Quite out of fashion, like a rusty mail
In monumental mockery
William Shakespeare, Troilus and Cressida
Styles & Wood (In Administration) v GE CIF Trustees (unreported) (County Court at Central London)
This is the second summary judgement application to enforce an adjudicator’s award against an insolvent company to be considered by the courts since the critical judgement of the Supreme Court in Bresco Electrical Services Ltd (In Liquidation) v Michael J Lonsdale (Electrical) Ltd  UKSC 25.
For a discussion of the first judgement, take a look at Lauren’s blog here.
Although this is the second judgement, it was actually heard first.
The decision is the latest step in the slow, steady progress of insolvency practitioners, backed in some cases by litigation funders, who have sought to prise open the door of adjudication since it was shut so firmly in their faces by the Court of Appeal in Bouygues (UK) Limited v Dahl-Jensen (UK) Limited twenty years ago.
If there were no insolvency issues involved this would surely have been a fairly typical, and messy, adjudication over a final account which dealt with the usual mishmash of variations, extensions of time and loss and expense. The sums involved though were fairly significant, the contractor claimant valuing the Final Account at £9m and the defendant’s QS valuing it at £5m.
The aggrieved contractor started an adjudication on 14 February 2020, and went into administration on 28 February 2020. The adjudicator’s decision was announced on 9 April 2020. He awarded the contractor £700,000 plus VAT and interest, so a considerable sum was at stake here.
Unsurprisingly, the administrators decided that they wanted to enforce the award. The defendant said it wanted to reopen the dispute, as it is entitled to do, in an arbitration.
The administrators offered to ring fence the adjudicator’s award, and also offered an ATE policy as security for the potential costs of an arbitration of the dispute. It was the adequacy of the security which was the key issue here.
Importantly, there was no added complication of a third party funder involved.
The factors that the judge took into account in his decision making were:
- The flexibility of the arbitration provisions in the contract which allowed the arbitrator to cap costs
- Much of the work necessary to arbitrate the dispute had already been done for the purposes of the adjudication, thereby reducing the likely costs. Most notably, the defendant had incurred costs of £280,000 in the adjudication, deploying substantial expert evidence in relation to quantum and delay.
- The issues were straightforward
- The defendant’s costs estimate was inadequate. It estimated its costs of an arbitration at £800,000, but failed to provide sufficient evidence to support this estimate, in the form of a costs breakdown or similar. The claimant came up with its own estimate of the defendant’s costs, which the judge preferred, and he accordingly decided that the offered level of insurance of £200,000 would be sufficient.
- If at any point it became apparent that the level of ATE insurance was not sufficient, the defendant could make an application to the court for further security
He accordingly gave summary judgement and enforced the award.
HHJ Parfitt’s no nonsense, and concise, approach to the issues raised is a good read and I recommend it.
One other noteworthy item here is the contract the parties used, which was JCT Intermediate Building Contract with Contractor’s Design 2011, for a contract involving a contract sum of £9m (on the claimant’s figures) and £5m (on the defendant’s figures).
I cannot help but think that this might not have been the contract best suited to the project, particularly given the sums in issue, and that the parties might have been better off using either a JCT Standard Building Contract or JCT Design and Build Contract. Perhaps the more detailed provisions in one of these contracts would have mitigated the problems that arose.