John Doyle v Erith Contractors Limited [2020] EWHC 2451 (TCC)
The TCC has handed down its first judgment considering principles from the significant Supreme Court decision in Bresco and has provided helpful guidance on how the court will consider an application for enforcement of an adjudication award by an insolvent party.
Earlier this year, the Supreme Court handed down its widely anticipated judgment in the landmark case of Bresco Electrical Services Ltd (in Liquidation) v Michael J Lonsdale (Electrical) Ltd whereby the court unanimously upheld the right of companies in liquidation to commence adjudication proceedings. The decision was a welcome one for insolvency professionals who were given the green light to pursue debts owed to insolvent companies through the quick and convenient route of adjudication, however, a recent case has highlighted that insolvency practitioners will face an uphill struggle when seeking to enforce an adjudication award.
The case of John Doyle Construction Ltd v Erith Contractors Ltd concerned a final account dispute relating to hard landscaping works John Doyle Construction Ltd (JDC) had been instructed to carry out on the London Olympic Park in 2012. Later that year, JDC entered administration and in 2013, voluntary liquidation. It wasn’t until five years later, in 2018, when the liquidators were unable to agree on the final account with Erith that an adjudication was commenced for approximately £4m. The adjudicator awarded JDC the sum of £1.2 million and JDC then applied for summary judgment to enforce the adjudicator’s decision - Erith resisted the application.
Decision
The Court found in favour of Erith, declining to enforce the adjudicator’s decision. It was held that JDC had not provided adequate security for Erith’s cross-claims or for Erith’s costs of bringing such a claim. In reaching this decision, Mr Justice Fraser noted Lord Brigg's comments in Bresco and acknowledged that there is real value to companies in liquidation to have adjudication available, but that there will be potential difficulties to be considered upon enforcement. To help overcome these difficulties, Fraser J set down five helpful principles to be applied when an insolvent party seeks to enforce an adjudicator’s award, namely:
- Whether the adjudicator had considered the entire financial dealings between the parties
- Whether there are any mutual dealings between the parties that are outside the construction contract
- Whether there are any defences available that were not deployed in the adjudication
- Whether the liquidator is prepared to offer appropriate undertakings such as ring-fencing the enforcement proceeds and
- Whether there is a real risk that enforcing the decision will deprive the losing party of security for its cross-claim
Fraser J concluded that the circumstances where summary judgment would be available to a company in liquidation who seeks to enforce an adjudicator's award in its favour are when the adjudication has dealt with all the outstanding matters between the parties and when there is no "real risk" that summary enforcement of the adjudicator's decision would deprive the paying party of security for its cross-claim.
Also of interest are Fraser J’s comments regarding the TCC’s accelerated process for enforcing adjudicator’s decisions, intended to preserve cash flow for the industry. Given these proceedings related to a historic dispute so many years in the past, Fraser J noted that insolvent parties who delay in bringing their proceedings cannot expect their claims for summary judgment to be routinely expedited in the same way as more conventional adjudication business.
The case provides welcome clarification in the aftermath of Bresco and highlights the practical difficulties companies in liquidation will face where enforcement is required. Although the Supreme Court in Bresco has made it clear that a company in liquidation does have the right to adjudicate its disputes, the case makes clear that the company will need to meet the high threshold “tests” of the court if they are to enforce the decision.
Lauren Melnyk