Enforcement of an Adjudicator's Decision in the Context of Insolvency - Part 1
In Bresco Electrical Services Ltd (in liquidation) v Michael J Lonsdale (Electrical) Ltd  UKSC 25) (Bresco), the Supreme Court held that a party in liquidation has the right to refer a dispute to adjudication. We previously considered the decision in Bresco in Adjudication Matters – July 2020.
However the Court will not automatically enforce an Adjudicator's Decision in favour of an insolvent party. In Meadowside Building Developments Ltd (in liquidation) v 12-18 Hill Street Management Co Ltd  EWHC 2651 (TCC) (Meadowside) the Court provided guidance on the circumstances in which an insolvent party may secure enforcement of an Adjudicator's Decision, including examples of the measures that an insolvent party may offer to persuade the Court to enforce. Such measures might include undertakings to ring-fence the sum awarded, the provision of a third party guarantee or bond, or offering After the Event (ATE) Insurance.
How the principles in Bresco and Meadowside will be applied in practice depends upon the facts of the particular case.
In this Part 1, we look at a recent case where an insolvent party successfully secured enforcement of an Adjudicator's Decision. In Part 2, we look at another recent case where the Court declined to enforce an Adjudicator's Decision in favour of an insolvent party.
Here a dispute had arisen between Styles & Wood (S&W) and GE CIF Trustees Ltd (GECIF) in respect of S&W's final account. The dispute was referred to adjudication in February 2020, with S&W entering into administration shortly thereafter. The adjudication proceeded despite the administration, with the adjudicator ultimately awarding a considerable sum to S&W.
GECIF refused to comply with the Adjudicator's Decision. They argued that any enforcement of the Adjudicator's Decision would be futile (relying upon Coulson LJ's Court of Appeal judgment in Bresco that an Adjudicator's Decision in favour of a company in insolvent liquidation facing a separate cross-claim, ".will not be capable of being enforced. That would make the adjudication an exercise in futility.")
However, the Court of Appeal judgment had subsequently been overturned by the Supreme Court, which held that any issues as to insolvency should be addressed at the enforcement stage, and that adjudication cannot be restrained solely on the grounds of a party's insolvency.
As such, S&W brought enforcement proceedings. When deciding whether or not to enforce the Adjudicator's Decision, the Court considered undertakings from the Joint Administrators of S&W to:
- Ring-fence the sum awarded by the Adjudicator pending the resolution of any final determination proceedings; and
- Secure ATE insurance to cover any potential adverse costs order in any subsequent final determination proceedings.
The Court's Decision
The Court accepted the security offered by the Joint Administrators and found in favour of S&W, enforcing the Adjudicator's Decision. The undertakings offered were considered satisfactory as they provided security in respect of the sum awarded, in that:
- the sum awarded could be repaid should GECIF successfully overturn the adjudicator's decision in subsequent litigation or arbitration; and
- should GECIF successfully overturn the adjudicator's decision in subsequent litigation or arbitration, then S&W would be able to pay any adverse costs order made against S&W in favour of GECIF.
- Since the Supreme Court's judgment was handed down in Bresco, this is the first case in which an insolvent party has successfully enforced an Adjudicator's Decision.
- While Meadowside set the bar high for those relying on third-party litigation funding, it appears to still be possible, given the right circumstances, for an Adjudicator's Decision to be enforced.
- It is worth noting that in Styles & Wood, and in contrast to other cases which have been heard post-Bresco, funds were available within the Administration itself, and so the claim was not funded by a third-party litigation funder. This may have given S&W's Joint Administrators more flexibility, making it easier for them to meet the threshold required to convince the judge to enforce the adjudicator's decision. For example, during the proceedings, concerns about the wording and substance of the ATE insurance had been expressed, which the Joint Administrators were able to address with amends being made to the policy, as well as by providing supplementary undertakings.
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.