Enforcement of an Adjudicator's Decision in the Context of Insolvency - Part 2
As discussed in Part 1 of our article on enforcement of Adjudicator's Decisions in the context of insolvency Bresco Electrical Services Ltd (in liquidation) v Michael J Lonsdale (Electrical) Ltd  UKSC 25) (Bresco) established that a third party in liquidation has the right to adjudicate.
Although there was some concern that the decision in Bresco would lead to the floodgates being opened in terms of insolvent third parties issuing adjudication proceedings, the recent decision of John Doyle Construction Ltd (In Liquidation) v Erith Contractors Ltd  EWHC 2451 (TCC) (John Doyle v Erith), which applied Bresco, suggests that it will still be difficult for an insolvent party to secure enforcement of an Adjudicator's Decision despite the right to adjudicate confirmed by Bresco.
This is the first significant decision post-Bresco, where the Court has declined to enforce an Adjudicator's Decision in favour of a claimant in insolvent liquidation.
In John Doyle v Erith, the dispute related to landscaping work at the London Olympic Park which John Doyle had been engaged to carry out in 2012. John Doyle went into liquidation in 2013 and the adjudication was commenced in 2018. In the adjudication, John Doyle were awarded £1.2 million and applied to enforce this Decision.
The Court's Decision
The Court found in favour of Erith, and declined to enforce the Adjudicator's Decision. The judgment outlined five key principles to be considered in respect of the enforcement of an adjudicator's decision in favour of an insolvent company:
- Whether the Adjudicator considered the entire financial dealings between the parties under the construction contract in question, or just part of this.
- Whether there are dealings between the parties that fall outside of the construction contract in question.
- Whether there are any additional defences available that were not used in the adjudication.
- Whether the liquidator offers appropriate undertakings e.g. ring-fencing the sum awarded by the Adjudicator.
- Whether there is a risk that enforcing the Adjudicator's decision will cause the losing party to be stripped of security for its cross-claim.
Applying the above principles, the Court held that John Doyle had not provided adequate security for Erith's legal costs. For example, there had been no offer to ring fence the sums awarded, and John Doyle's ATE insurance policy was inadequate.
- Although Bresco was a landmark decision for insolvent companies looking to bring adjudication proceedings, there remain significant obstacles to overcome in order for an Adjudicator's Decision to be enforced, which should be considered carefully before the insolvent party incurs the costs of referring a dispute to adjudication and/or issuing enforcement proceedings. Ultimately the insolvent party will need to provide compelling evidence that it is able to repay the losing party and cover the losing party's legal costs in the event that the Adjudicator's Decision is reversed in later court/arbitration proceedings.
- Fraser J noted here that the works were carried out on the project several years ago. It may not be appropriate for claimants to benefit from the accelerated process of adjudication in circumstances where completion took place a long time ago and the claimant is now insolvent. The TCC has confirmed that it will release updated guidance on this point which should assist.
- Insurance providers offering ATE insurance should consider whether they can offer the required level of security in accordance with this decision. The quality of the security offered is paramount. In this case, a so-called letter of intent was offered rather than a letter of credit, and a low level of ATE cover was made available, which the judge deemed to be unsatisfactory and insufficient.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.