In Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd [2020] UKSC 25, the Supreme Court handed down a broad, policy-based judgment which decided that an adjudicator did have jurisdiction to act when the referring party was in insolvent liquidation. However, in that judgment Lord Briggs noted that practical issues may arise if that referring party later sought to enforce the adjudicator’s decision.
In John Doyle Construction v Erith Contractors [2020] EWHC 2451 (TCC) Fraser J – having delayed the summary judgment hearing to digest the Bresco decision - set out the principles for insolvent parties looking to enforce an adjudicator’s decision.
This article will consider the decision in John Doyle Construction and its practical effects for parties and practitioners.
Facts
John Doyle Construction (“JDC”) carried out landscaping works for Erith Contractors (“Erith”) on the Olympic Park in London prior to 2012. In 2013, JDC went into a creditors voluntary liquidation.
In 2016, JDC’s liquidators entered into an agreement with Henderson Jones (“HJ”). Under that agreement, HJ purchased JDC’s claim against Erith for £6,500.
JDC subsequently referred a dispute with Erith to adjudication in 2018, seeking payment of £4m. JDC was successful in the adjudication, although only recovered £1.2m.
Presumably relying on decisions prior to Bresco in the Supreme Court, Erith refused to pay. JDC subsequently brought a Part 7 claim in the Technology and Construction Court (“TCC”), with a parallel application for summary judgment, to enforce the adjudicator’s decision.
Decision
Fraser J considered that there were two main issues to resolve:
- Should a company in insolvent liquidation be entitled to enforce an adjudicator’s decision by way of summary judgment?; and
- If so, should a stay of execution be granted?
Prior to addressing those issues, Fraser J restated the principles in the Supreme Court’s decision in Bresco. In Bresco, Lord Briggs stated that construction adjudication is not incompatible with the insolvency process; in fact, an adjudicator’s decision could be of real utility to a liquidator.
The decision in Bresco had the effect of not restraining adjudications from proceeding (as the Court of Appeal had decided previously). This however presented issues on enforcement, as the defendant might then wish to have the dispute finally determined by arbitration or litigation. The Supreme Court noted that in this instance, the liquidator could offer appropriate undertakings to the paying party pending such final determination of the dispute.
Fraser J then stated the principles to be applied by the court when considering an application for summary judgment of an adjudicator’s decision in favour of a company in insolvent liquidation. Under those principles, the court should consider whether:
- The dispute that was subject to adjudication represented the whole of the parties’ dealings under the construction contract. In practical terms, this is taken to be a final account dispute. Fraser J noted that narrow, procedural disputes (such as “smash and grab” referrals) would not be appropriate.
- There are mutual dealings between the parties outside of the construction contract. This could include works under other contracts. Fraser J later noted that such wider issues should be considered by the court and not the adjudicator. The adjudicator should focus on the matters within her or his jurisdiction (subject to agreement otherwise by the parties).
- There are other defences available to the defendant that were not deployed in the adjudication itself. Fraser J considered this principle similar to number (2) above. One example of such a defence might be an employer’s discovery of latent defects in the works after the adjudication.
- The claimant’s liquidator will offer appropriate undertakings. Fraser J cited the decision in Meadowside v Hill Street Management [2019] EWHC 2651 (TCC) to present practical examples of those undertakings. The liquidator could offer to ringfence the enforcement proceeds, offer a third party bond or guarantee, or provide after the event (“ATE”) insurance.
- There is a real risk that enforcement will deprive the paying party (or defendant) of security for its cross-claim. Fraser J stated that this principle is similar to number (4) above. The driver behind this principle is the paying party’s right to have the dispute finally determined in another forum.
Fraser J then proceeded to apply the principles above to the two issues in the case.
Issue 1
The present dispute concerned JDC’s final account. The adjudicator had also considered a cross-claim from Erith of £40,000, which related to another contract. Therefore, all matters under the Olympic Park contract and any other matters between the parties had been addressed, and principles (1) to (3) above had been satisfied.
However, Fraser J noted that the liquidator had failed to offer any adequate security to Erith. JDC produced what it called a letter of credit, although Fraser J dismissed this as a letter of intent. The judge also considered an ATE policy presented to the court by JDC. He considered that, as the policy contained numerous exclusions and avoidance clauses, it did not provide Erith with sufficient security for its cross-claim. Consequently, Fraser J held that principles (4) and (5) above had not been satisfied and refused summary judgment.
Issue 2
Following his refusal to order summary judgment, Fraser J considered the second issue hypothetically. The judge restated the principles in Wimbledon Construction Company 2000 Ltd v Derek Vago [2005] EWHC 1086 (TCC), which expressly stated that “if the claimant [in enforcement proceedings] is in insolvent liquidation…then a stay of execution will usually be granted”. Fraser J stated that
“Accordingly, unless there are some exceptional circumstances that would justify not awarding a stay of execution, the most that JDC could achieve would be summary judgment on the sum awarded by the adjudicator, with a stay of execution.” (emphasis added)
Such exceptional circumstances, Fraser J said, could include adequate security as stipulated in principles (4) and (5) above. He therefore concluded that he would have granted a stay of execution in the present case.
Commentary
The decision in John Doyle Construction is typically practical solution from the TCC, following the broad principles laid down by the Supreme Court in Bresco.
Fraser J’s five principles for insolvent parties seeking to enforce an adjudicator’s decision via summary judgment represent a high bar for claimants to navigate. Claimants and their liquidators should consider whether the dispute which was subject to adjudication covers all of the matters between the parties and, if it doesn’t, preempt any further defences or cross-claims the other party may have. On enforcement the claimant should put together a package of measures that does not deprive the defendant of having the claim finally determined.
Although the five principles do not restrict adjudications where the referring party is insolvent from taking place, the solvent responding party (or defendant in enforcement proceedings) has the comfort of knowing the strict criteria a claimant has to meet on enforcement. This knowledge may tip the balance towards defendants in any post-decision settlement discussions between the parties.
The judge also had some general comments regarding the use of summary judgment to enforce adjudication decisions. He opined that the expedited enforcement procedure, developed by the TCC, was not suitable for historic claims such as JDC’s. Fraser J noted that in instances where the claim, and the subsequent adjudication decision, are years old, it would be more appropriate to follow the standard timetable. Further, the court will resist attempts from the parties to reopen the adjudicated dispute. This exercise can be carried out on final determination if Fraser J’s five principles for summary judgment can be satisfied.
