One of the big decisions to come out of 2020 was the Supreme Court’s judgment in Bresco Electrical Services Ltd v. Michael J Lonsdale (Electrical) Ltd  UKSC 25 in which it was held an insolvent party can adjudicate a dispute.
However, the Supreme Court went on to say that an adjudicator’s decision obtained by an insolvent party may not be enforced because of the insolvency: that was something the Technology and Construction Court has to decide on a case by case basis in enforcement proceedings.
So what happened next?
Along came a man called John Doyle – well John Doyle Construction Ltd (In Liquidation). John Doyle had a dispute with Erith Contractors dating back to 2012 (John Doyle Construction Limited (In Liquidation) v. Erith Contractors Limited  EWHC 2451 (TCC)). The case related to hard landscaping works at the London Olympic site.
John Doyle’s liquidation had occurred in 2013, yet the claim remained live, as John Doyle had commenced an adjudication in 2018 – the adjudicator had awarded John Doyle £1.2m in his decision. The adjudicator had, in fairness, recognised that the decision may not be enforceable. Presumably John Doyle, well more correctly the liquidator or its appointed advisers (Henderson Jones), were waiting for Bresco to be resolved before trying to enforce the decision. Henderson Jones’ business model is to purchase claims from liquidators of insolvent companies – as described in the judgment.
Henderson Jones presumably thought Christmas had come early when the Supreme Court said an insolvent party could adjudicate. However, adjudicating is one thing, getting the money is another.
The court decided in favour of Erith – not enforcing the decision. This is the Christmas edition, so not too much law, but put simply: for a party to be able to enforce an adjudication decision if they are in liquidation, the court is going to want to see a great deal of security put up by the liquidator or the person who ‘owns’ the claim. The reason is an adjudication decision is temporary not final and the other party has a right to have the claim heard in a final tribunal (court or arbitration). John Doyle’s security was not sufficient. There was no agreement to ring fence the sum awarded in the adjudication, nor was there sufficient security put up for Erith’s costs in running the final hearing in a court.
There were other reasons that made the court reluctant to enforce the adjudication decision, not least the time taken to do anything about it. So what now?
There is undoubtedly a right for an insolvent party to bring an adjudication. However, is there any point? Based on John Doyle, the liquidator would have to put up the same level of security as any sum decided in adjudication as well as additional security to cover the other side’s costs. Whilst there are insurance policies in place for the other side’s costs (ATE insurance), the policy offered was not deemed good enough for Erith in this case, and it seems unlikely ATE insurance alone will plug the gap.
This article is from the December 2020 issue of Cornerstone, our newsletter for those working within the construction industry. For further information please contact a member of Birketts’ Construction Team. To download the latest issue, please visit the newsletter section of our website.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at December 2020.