25 September 2020 #Construction
Our article in July 2020 commented on the Supreme Court decision in Bresco Electrical Services Ltd (In Liquidation) v Michael J Lonsdale (Electrical) Ltd  USC 25. This case opened the doors to more adjudications being started by liquidators of construction companies. It said that there was unlikely to be either (i) a successful argument of no jurisdiction; and/or (ii) an injunction granted by the court to prevent a company in liquidation commencing adjudication proceedings. However, Bresco did leave open the issue whether a court would enforce an adjudication in any event, which was considered recently by the Technology and Construction Court in John Doyle Construction Limited (in liquidation) v Erith Contractors Limited  EWHC 2451.
John Doyle was a subcontractor to Erith in relation to some landscape works at the Olympic Park for the 2012 Olympics. The Claimant, John Doyle, had been in liquidation since 2013. The dispute related to the final account for those works.The right to make this claim was assigned by the liquidator to a third party, Henderson Jones, in 2016. The arrangements with Henderson Jones raised various complex legal issues. John Doyle commenced an adjudication in January 2018 for £4 million. The adjudicator awarded £1.2 million in June 2018. Erith did not pay and there were discussions between the parties including an offer by John Doyle of security in return for payment. In April 2020, John Doyle sought enforcement of the adjudicator’s decision. The hearing was delayed pending the outcome of the Supreme Court decision in Bresco.
The judge, Fraser J, relying on Bresco, set out the principles to be applied by the court when considering whether to grant an application for enforcement by way of summary judgment of an adjudication decision in favour of a company in liquidation:
These five principles relate to tests of whether the defendant has a “real prospect of successfully defending the claim or issue” and whether there is a “compelling reason why the case should be disposed of at trial”.
Based on this Fraser J held that summary judgment would be available to a company in liquidation which seeks to enforce an adjudicator’s decision where:
It was in John Doyle’s favour that the dispute related to the final account. The mere existence of a cross claims on another project did not of itself mean that summary judgment should be denied. However, the real issue in this case was whether there was a real risk that Erith would have no security for its cross claim. The concerns here are (i) recovery of the money paid to John Doyle and (ii) the costs incurred in getting that money back.
In this case Henderson Jones offered security by way of a letter of credit (but only once monies had been paid in full of the adjudicator’s decision) and an ATE insurance policy. Fraser J looked in detail at the proposed forms of security and decided that this was insufficient because it would not put Erith in the position that if it successfully overturned the adjudicator’s decision had John Doyle been solvent. This would have required John Doyle to (i) repay the capital sum and (ii) meet any adverse cost orders.
Fraser J also noted that if he was wrong that John Doyle was not entitled to summary judgment, that he would have granted a stay of execution based on the principles in Wimbledon v Vago (2005). These principles included that, “if the claimant is in insolvent liquidation…. then a stay of execution will usually be granted.”
Whilst the Supreme Court in Bresco was clear that a company in liquidation had the right to adjudicate, there are clear difficulties if it seeks to enforce any decisions in its favour. In this case, the key issue was the lack of adequate security available to the paying party.
In addition, there was some comments about whether the streamlined process for enforcement should apply to applications like this which related to historic disputes. Fraser J said that the normal timescales for a summary judgment application (a few months rather than a few weeks) would be more likely to allow a defendant more time to collate its evidence and prepare. This would also mean that the fast track process could be preserved for solvent companies who had urgent need for a decision. There was a clear indication that this may be addressed in changes to the TCC Guide.