Blog - 20/10/2020
More on enforcement after Bresco
Hey presto, recap of the big cases after Bresco: John Doyle Construction Limited (in liquidation) v Erith Contractors Limited 
Previously our blog on Bresco v Lonsdale, available here reported on whether an insolvent party would be able to adjudicate a dispute. Long-story-short: the Supreme Court’s decision (welcomed by insolvency professionals) overturned the Court of Appeal’s decision that an adjudication in such circumstances would be an “exercise in futility”. Instead, the Supreme Court held that an insolvent party could bring an adjudication. Cases such as Meadowside, heard between the Court of Appeal’s and the Supreme Court’s decisions in Bresco highlighted some examples of the hurdles insolvent parties would ultimately need to overcome in order to be successful. John Doyle Construction Limited (in liquidation) (JDC) v Erith Contractors Limited (Erith) available in full here has provided much needed clarity on the nitty gritty issue of enforcement of adjudicators’ decisions in such circumstances.
JDC entered liquidation in 2013. JDC did not issue proceedings against Erith until 2018 for enforcement of an adjudicator’s award in its favour in the sum of £1.2 million.
JDC’s enforcement proceedings amounted to an application for summary judgment of a temporarily binding decision by an insolvent subcontractor against a contractor. Taking into account the Supreme Court’s decision in Bresco, the Court had to decide whether to permit enforcement and if so whether to grant a stay of execution.
Spoiler – the Court did not grant enforcement, finding in Erith’s favour.
Decision: why did the Court decline enforcement?
The TCC followed the Supreme Court’s decision in Bresco while helpfully setting down five principles (at para 54) to be applied when an insolvent company seeks to enforce an adjudication award in its favour:
- Whether the dispute in respect of which the adjudicator has issued a decision is one in respect of the whole of the parties’ financial dealings under the construction contract in question, or simply one element of it.
- Whether there are mutual dealings between the parties that are outside the construction contract under which the adjudicator has resolved the particular dispute.
- Whether there are other defences available to the defendant that were not deployed in the adjudication.
- Whether the liquidator is prepared to offer appropriate undertakings, such as ring-fencing the enforcement proceeds, and/or where there is other security available.
- Whether there is a real risk that the summary enforcement of an adjudication decision will deprive the paying party of security for its cross-claim.
Overall, if an insolvent party who chooses to adjudicate is to stand any chance of being successful at the enforcement stage, it needs to ensure that the adjudicator has consideration of all outstanding financial matters between the parties. Furthermore, where an adjudication award in favour of an insolvent party deals only with one element of the dispute, it is unlikely to be enforced. Accordingly, enforcement in such circumstances would be more suited to final account disputes.
On the facts, JDC v Erith was a final account dispute, so the first part of the test was satisfied. However, JDC had not provided adequate security. Even though it was able to produce a draft letter of credit and an ATE insurance policy, the Court found that such security did not serve to place Erith in a similar position to the one which it would be in were JDC to be solvent. Fraser J further noted that if he was wrong and went on to grant summary judgment, he would have granted a stay of execution in any event, in accordance with the principles set out in Wimbledon v Vago.
Appropriateness of security offered
Following Meadowside, when considering if the security offered is satisfactory to the Court, one should be mindful of the judgment in Styles & Wood (in administration) v GE CIF Trustees . HHJ Parfitt accepted the security offered, being (i) undertakings from the joint administrators to ring-fence the sums awarded by the adjudicator, and (ii) an ATE insurance policy to cover a potential adverse costs order in any subsequent final determination proceedings. Accordingly, HHJ Parfitt enforced the adjudicator’s decision finding in Styles & Wood’s favour. Here, the insolvent party successfully enforced the adjudicator’s decision.
In contrast, JDC v Erith involved added layers of complication and delays brought about by a third-party litigation funder which ultimately prevented enforcement.
JDC v Erith related to hard landscaping works at the Olympic Park “performed between 2010 and 2012”. Fraser J commented that the TCC’s “streamlined and rapid procedure” for enforcement of an adjudicator’s decision was not designed to deal with historic issues that arose where decisions were years rather than months old. Instead, Fraser J stipulated the normal CPR timescales would have been more appropriate and the fast track process should be reserved for solvent parties in urgent need of a Court decision. Fraser J warned insolvent parties that should they delay in bringing proceedings, they should not expect claims for summary judgment to be routinely expedited.
In JDC v Erith, the TCC emphasised that it is “clearly in the public interest that liquidators should be able to pursue and enforce debts owed to companies in liquidation in a cost-effective manner”. It is likely that we will continue to see adjudication (perhaps now more so than ever) being used by liquidators as a mechanism to realise assets for creditors on the behalf of insolvent companies. The process of adjudication (unlike many court proceedings which now have moved to unfamiliar virtual hearings via Skype or Zoom) has not changed due to Coronavirus, and the same time limits and rules apply. An insolvent party can adjudicate; however, in order to avoid falling at the first hurdle, liquidators, funders and ATE insurance providers should carefully consider whether they can offer appropriate security as required by the Court, and only thereafter should enforcement by an insolvent party be pursued.
 Meadowside Building Developments Ltd v 12-18 Hill Street Management Company Ltd  EWHC 2651 (TCC) (10 October 2019)
 John Doyle Construction Ltd v Erith Contractors Ltd (Rev 1)  EWHC 2451 (TCC) (14 September 2020)
 Wimbledon Construction Company 2000 Limited v Derek Vago  EWHC 1086 (TCC)
 Styles & Wood Ltd (in administration) v GE CIF Trustees Ltd (unreported), 4 September 2020 (County Court at Central London)
If you have any queries about this topic, please contact our Construction or Restructuring & Insolvency teams.
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