Introduction
In July 2020, Lord Briggs in the Supreme Court held that a party in liquidation has the right to pursue adjudication, but that it will be for the judge at the enforcement stage to decide whether the summary judgment application should succeed (Bresco Electrical Services Ltd (in liquidation) v Michael J Lonsdale (Electrical) Ltd [2020] UKSC 25). The Bresco ruling was subsequently followed in the case of John Doyle Construction Ltd v Erith Contractors Ltd [2020] EWHC 2451 (TCC), in which the court declined to enforce the adjudicator’s decision, primarily due to the lack of security provided by the insolvent company. That case also set out a number of principles that should apply to an insolvent party seeking to enforce an adjudicator’s decision.
Styles & Wood (in administration) v GE CIF Trustees Ltd (unreported) is the first case to enforce an adjudicator’s decision for a company in liquidation following the Bresco ruling in July, and provides further clarity as to the attitude of the courts, and the requirements for all parties.
Background
Styles & Wood (Styles), who were the contractors in this matter, entered into a building contract with GE CIF Trustees (GECIF) acting through DTZ Investors for an office conversion project at St Ann’s Square in Manchester. Following completion of the works, a dispute arose regarding the final account and Styles commenced an adjudication against GECIF on 14 February 2020. However, Styles went into administration shortly after, on 28 February 2020. Proceedings continued, and the adjudicator’s decision was issued on 9 April 2020 with Styles awarded £700,000 plus VAT and interest.
GECIF refused to comply with the adjudicator’s decision and Styles therefore sought to enforce the judgment through the courts. The case was heard on 4 September 2020 in the County Court at Central London.
Decision in the County Court
On the basis of the Supreme Court’s judgment in Bresco, Styles argued that the insolvency set-off rules do not trump a construction contract party’s right to enforcement of an adjudication.
Styles proposed to fulfil the conditions of enforcement set out in Bresco and John Doyle Construction by ringfencing the awarded sums for three months, and taking out an after-the-event (ATE) insurance policy to cover any potential adverse costs in subsequent proceedings. The issue of sufficient security being offered by the party in liquidation had already been discussed in the case of Meadowside Building Developments Ltd (in liquidation) v 12-18 Hill Street Management Co Ltd [2019] EWHC 2651 (TCC).
When issuing his judgment, Judge Parfitt considered that the principal issue to be decided was the suitability of the undertakings by Styles. The key points emphasised by the judge were as follows:
- The relevant contract provided a mechanism that allowed the arbitrator to cap costs and allowed for an overall more flexible and cost-effective arbitration process.
- A significant amount of work had already been done for the purposes of the dispute progressing to arbitration. In particular, GECIF had incurred costs of around £280,000 in the adjudication, producing substantial expert evidence on both quantum and delay issues.
- The judge did not agree with the likely costs put forward by GECIF – agreeing with counsel for Styles that they lacked proper breakdown or particularisation. Styles put forward an estimate of £333,000 against GECIF’s estimate of £800,000. The judge ruled that Styles’ estimate was sufficient to show that the offer made through its ATE policy was appropriate.
- In the context of building arbitration disputes, the issues in this case were relatively straightforward.
- If the ATE insurance was found to be insufficient at a later stage, then GECIF could make an application to the court for further security.
Implications
Following on from the cases of Meadowside, Bresco and also John Doyle Construction, this most recent ruling offers further clarity and guidance regarding the enforcement of adjudication decisions for companies in liquidation. It demonstrates that the courts are willing to enforce judgments in favour of an insolvent company, but that each case will turn on its own facts, and that enforcement will depend on whether the necessary enforcement conditions have been met by the party in liquidation.
Parties should be aware that, to date, the decisions of the courts suggest that they are more inclined to accept types of security that do not involve third-party funders. The present case can be contrasted with John Doyle Construction, which involved added layers of complication and delays brought about by a third-party litigation funder that the court ultimately decided prevented enforcement.
As more companies are predicted to go into liquidation due to the effects of the COVID-19 pandemic, parties on both sides should take note of this ruling. For those in liquidation seeking to enforce an adjudicator’s decision, careful consideration should be given as to the type and level of security that should be offered. For parties seeking to resist enforcement by a company in liquidation, this case will provide a warning that a “broad-brush” approach to costs estimates will likely not be tolerated by the courts, particularly if the challenge to enforcement is based on insufficient costs protection. Parties should be prepared to provide a clear breakdown and reasoning (even if the resulting figure is still an estimate) such as might be found in a prospective costs budget.
Please note that the guidance in the cases mentioned in this article applies to England and Wales, although it is likely to be persuasive in Scotland.
With additional reporting by Natasha Wyllie.