English court sets out principles for enforcement of adjudication decisions by insolvent companies post-Bresco

John Doyle Construction Limited (in liquidation) v Erith Contractors Limited sees the first consideration of a claim for summary enforcement of an adjudication decision by a company in liquidation following the Supreme Court’s decision in Bresco Electrical Services Limited (in liquidation) v Michael J Lonsdale (Electrical) Limited.

In Bresco, the Supreme Court paved the way for construction adjudications by insolvent companies by overturning the Court of Appeal’s decision to grant an injunction restraining an adjudication commenced by an insolvent company. However, Lord Briggs recognised that the proper time to consider the issues caused by insolvency would be at the stage of enforcement by summary judgment. See our discussion of the Supreme Court’s decision in our blog.

Facts 

The dispute surrounds hard landscaping works at the London 2012 Olympic Park which Erith sub-sub-contracted to JDC. JDC performed a substantial amount of work before entering administration, leaving Erith to step in to complete the works. JDC sought payment for the work completed through the final account mechanism in the NEC3 contract. In 2018, JDC were awarded £1.2 million by way of adjudication.

Decision 

Fraser J considered that there were two different questions regarding enforcement:

1. Whether JDC was entitled to summary judgment at all.
2. Whether a stay of execution should be granted.

Firstly, after considering Bresco and Bouygues v Dahl-Jensen (which was cited with approval by Lord Briggs in Bresco), Fraser J set out five principles to be applied by the court when considering an application for summary judgment of an adjudication decision in favour of an insolvent company:

1. Is the adjudication in respect of the whole of the parties’ financial dealings under the construction contract, or simply one element of it?
2. Are there mutual dealings between the parties outside of the construction contract?
3. Are there defences that were not deployed in the adjudication?
4. Is the liquidator prepared to offer appropriate undertakings, such as ring-fencing the proceeds or security?
5. Is there a real risk that summary enforcement will deprive the paying party of security for its cross-claims?

Fraser J recognised that the principles could be applied flexibly. For example, there may be no dispute about the other mutual dealings between the parties, or the value of the parties’ other financial dealings may be insubstantial compared to the adjudication award.

However, on the facts, Fraser J considered that the liquidators of JDC had not provided adequate security. Although JDC had purported (through a quasi-litigation funder) to offer a letter of intent and ATE insurance to Erith, after detailed consideration Fraser J found the security to be insufficient such that there was a real risk that the summary enforcement of the adjudication decision would deprive Erith of security for its cross-claims.

Despite this, Fraser J went on to consider whether he would have granted a stay of execution had JDC been entitled to summary judgment. Applying the well-known principles in Wimbledon v Vago, Fraser J recognised that a stay of execution would usually (save for exceptional circumstances) be granted if the claimant is insolvent. Fraser J decided that the assessment of exceptional circumstances essentially involved a consideration of his 4th and 5th principles (which JDC had not on the facts satisfied). Therefore, even if summary judgment were to be granted, he would have ordered a stay of execution.

The full decision is available here.

Styles and Wood Ltd (in administration) v GE CIF Trustees Ltd

Before Fraser J’s judgment was made available, HHJ Parfitt sitting in the County Court at Central London heard an application for summary judgment to enforce an adjudication award against a company in administration in Styles and Wood (in administration) v GE CIF Trustees Ltd. HHJ Parfitt considered the security that was offered by the administrators, which included an ATE insurance policy covering potential adverse costs orders in subsequent arbitration and an undertaking to ringfence the adjudication sums. On the condition that the ringfencing continued until after the conclusion of any appeal process and subject to the defendant’s right to apply to vary the value of the ATE insurance policy, HHJ Parfitt decided to enforce the adjudication award, without ordering a stay.

Comment

These cases emphasise the importance of having sufficient security in place (such as undertakings from the liquidators or ringfencing of enforcement proceeds) to ensure that the defendant will be in a similar position on enforcement to that which it would occupy were the claimant solvent. This will be particularly difficult in cases involving litigation funders, where careful consideration should be given to Fraser J’s detailed analysis on security that will not be adequate.

More broadly, Fraser J’s decision offers helpful guidance for insolvency practitioners contemplating construction adjudications post-Bresco. By carefully assessing the five principles before commencing adjudications, insolvency practitioners can maximise the prospects of successful enforcement.