The Court of Appeal in John Doyle Construction Ltd v Erith Contractors Ltd  EWCA Civ 1452 has recently cast significant doubt on the right of a company in liquidation to enforce an adjudication decision by way of summary judgment (i.e. quickly and without trial) where it does not determine the net balance due between the parties.
John Doyle ("JDC") had obtained an adjudication decision for £1.2 million in circumstances where Erith considered it had a significant counterclaim which ought to have been set off from this amount - and which would have resulted in a net balance to Erith.
The Court of Appeal considered the Supreme Court's decision Bresco Electrical Services Limited (in liquidation) v Michael J Lonsdale (Electrical) Limited ("Bresco"). There, the Supreme Court said a company in liquidation was entitled to commence and pursue an adjudication decision. However, the Court of Appeal has now clarified that Bresco did not decide that a company in liquidation was entitled to summary judgment to enforce the decision of an adjudicator regardless of the absence of a final determination of the other side's set-off and counterclaim. If it allowed such enforcement, the Court was concerned that it would deprive the paying party of its right to bring a counterclaim against the insolvent company. The Court also said that even if the judge had come to a different view, a stay (i.e. a direction delaying compliance with any court order) would have been granted given that Erith had a potential claim against JDC.
The Court also considered whether enforcement could occur (i.e. payment of the £1.2 million) if JDC provided security against the payment it received from Erith. JDC offered Erith an ATE insurance policy and a letter of credit - but this didn’t cut the mustard. Even if JDC had offered to pay the monies into Court, Coulson LJ made the point that this could amount to the "worst of all possible worlds". This was because, instead of maintaining construction industry cash flow, it would deprive the solvent contractor of cash "leaving the money sitting uselessly in the court's account" rather than being used actively in the economy. If cash ringfenced in the Court's bank would not be good enough to convince the Court to order summary judgment in this circumstances, it is difficult to see what would convince them.
As I said in my last article, not all claims are appropriate for adjudication. Indeed, in this case, the Court made some interesting comments regarding the use of adjudication in this situation. It was pointed out that the adjudication took over 5 months - which Coulson LJ said "may indicate that the claim may not have been suitable for adjudication". This is an interesting comment as parties frequently extend the timetable for adjudication for disputes where they are highly complex.
Coulson LJ also made it clear that a company in liquidation is "not the sort of court user that the TCC had in mind" when the enforcement procedure was created.
The Court was also critical of JDC's conduct in the dispute, stating that their "evidence was unnecessarily extensive" and that it would not be surprising if "it was not always precisely clear, either to Erith or the judge, what it was that JDC..were actually offering, or on what basis". The court was also critical of the inter-solicitor correspondence from JDC giving rise to "inappropriate levels of complexity and confusion".
The main takeaways:
- This case will put off insolvent parties (or rather, their liquidators/funders) incurring the time and expense of adjudication. Indeed, many cases relying on an optimistic interpretation of Bresco may now become inappropriate if adjudication decisions cannot be quickly enforced.
- maintaining cash flow in the construction industry is unlikely to be consistent with insolvency practitioners and their funders seeking to force solvent companies to provide security/lock cash away in Court without examination of relevant counterclaims.
- The case is also a reminder that despite its clear benefits in both time and costs, adjudication is not ultimately appropriate for every type of claim, particularly complex claims where the parties financial standing is precarious.
- It is also a reminder to keep the terms of any offers made as clear and simple as possible, rather than seeking to obfuscate. After all, you never know if they will end up being reviewed by the Court of Appeal