When listening to the parties’ submissions in John Doyle Construction Ltd (in liquidation) v Erith Contractors Ltd [2020] EWHC 2451 (TCC); [2020] PLSCS 175, the first reported Technology and Construction Court judgment applying Bresco Electrical Services Ltd (in liquidation) v Michael J Lonsdale (Electrical) Ltd [2020] UKSC 25; [2020] PLSCS 117, Fraser J may well have had a strong sense of déjà vu. After all, it was his first instance decision in Bresco that was overturned by the Supreme Court, despite a number of commentators (yours truly included) thinking it was correctly decided.
Key points
- The TCC has clarified when an insolvent company will be able to enforce an adjudicator’s award
- The TCC Guide may be changed to stop parties using the streamlined enforcement procedure in relation to old decisions or disputes
In Bresco, the Supreme Court held that an insolvent party can adjudicate a dispute, but also made clear that the decision may not then be enforced. That would be an issue to be decided by the court considering the enforcement proceedings. In fact, following the Court of Appeal’s earlier decision in the Bresco litigation, the TCC had considered what undertakings and security might be given in return for allowing the insolvent company to enforce an adjudicator’s award in Meadowside Building Developments Ltd v 12-18 Hill Street Management Co Ltd [2019] EWHC 2651 (TCC); [2019] PLSCS 197.
The hearing in John Doyle was initially scheduled for the same day that the Supreme Court handed down judgment in Bresco.
Helpfully, it was delayed to enable the parties and the court to consider the issues in the light of the Supreme Court’s decision.
The facts
The dispute related to hard landscaping works that John Doyle had carried out for Erith on the London Olympic Park in 2012. In fact, John Doyle went into administration before the Olympics started and was in liquidation in 2013. John Doyle’s liquidators obtained third-party funding in 2016 and commenced an adjudication in 2018 claiming £4m. They were awarded £1.2m of that and applied to the TCC to enforce the adjudicator’s decision by way of summary judgment.
The decision
Fraser J rejected John Doyle’s application on the basis that it had provided inadequate security for both Erith’s cross-claims against it and Erith’s costs of bringing the claim. This arguably did no more than agree with the approaches of the judge in Meadowside (who held that the security must place the responding party in the same place it would have been had the claimant been solvent; and the security on offer fell well short of that test) and of the Court of Appeal in Premier Motorauctions v PriceWaterhouseCoopers LLP and another [2017] EWCA Civ 1872.
What is of far greater interest is that Fraser J seized the nettle of describing “the principles to be applied by the court when considering an application for summary judgment on an adjudication decision in favour of a company in liquidation”. I suspect these will be of significant importance (perhaps, as is often the case, with some finessing in later judgments) for years to come.
The principles
First, the court should consider whether the adjudicator’s decision covers the whole of the parties’ dealings under the construction contract in question or simply one element of them.
Fraser J went as far as to say that tightly defined “smash-and-grab” adjudications (such as one based on the failure to serve a pay less notice) will not be enforced.
Second, are there mutual dealings between the parties that are outside the construction contract which is the subject of the adjudicator’s decision?
Third (which the judge acknowledged might be a different way of saying the same thing as the second principle), are there other defences available to the defendant which were not used in the adjudication?
Fourth, is the liquidator prepared to offer appropriate undertakings such as ring-fencing the sum paid in question until the dispute is resolved?
Finally (again, Fraser J acknowledged that this might be a different way of saying the fourth principle), is there a risk that allowing summary judgment will deprive the losing (but solvent) party of security for any cross-claim it enjoys against the insolvent claimant?
What does this mean in practice?
Fraser J felt that, taken together, an insolvent company would only succeed in a summary application if it (i) is a final account dispute covering all of the issues under the contract; (ii) where cross-claims under other contracts and defences not considered by the adjudicator have been included; and (iii) there is no real risk that paying the money to the company in liquidation will deprive the paying party of security for its cross-claim. The judge noted that types of adjudication meeting these requirements, especially one where all the different elements of the dispute are referred to an adjudicator, are “unusual”.
Fraser J also counselled adjudicators not to be drawn into considering the cross-claims under other contracts and defences not related to the matters in dispute in the adjudication. Absent an agreement from both parties allowing the adjudicator to do so, they would lack jurisdiction: “Such matters would be a matter for the court on the summary judgment application.”
Adjudication of old disputes
Adjudication is intended to bring a speedy interim resolution to the issue in question and the TCC has adopted streamlined procedures when considering summary judgment applications. The judge did not think that the TCC’s procedure was designed to deal with old adjudicators’ awards (more than two years in this case) in relation to even older disputes (eight years). We can expect changes to the TCC Guide to deal with this concern going forward.
Stuart Pemble is a partner at Mills & Reeve
