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Adjudicating while insolvent

This article is from December’s edition of Aggregate, which featured a month-by-month review of 2021. This is October’s entry. To read the complete newsletter as a PDF, click here.

The case of John Doyle Construction Limited (in liquidation) v. Erith Contractors Limited was decided by the Court of Appeal in October 2021.  The case was referred to the Court of Appeal by those acting for John Doyle as they had failed to enforce an adjudicator’s decision in the High Court.  Most of you will know the background, so we won’t repeat it, save to say the actual dispute related to work on the 2012 Olympics!

John Doyle are in liquidation, and the general rule is that an insolvent company (particularly in liquidation, there being some exceptions for CVAs) will be unable to enforce an adjudicator’s decision due to their temporary nature. This general rule was thrown into doubt last year by the Supreme Court’s decision in Bresco v. Lonsdale apparently saying differently.

John Doyle argued following Bresco that as they had provided adequate security, they were entitled to enforce the original adjudicator’s decision.

There are essentially two points to come out of the Court of Appeal’s judgment. The narrow point was that the alleged security offered by John Doyle’s liquidators was insufficient, lacked transparency and did not in practice provide the security claimed.

The wider point was Lord Justice Coulson’s view on the issue ‘Lurking in the Shadows’, being the whole matter of whether a company in liquidation can ever actually enforce an adjudicator’s decision.

Lord Justice Coulson didn’t say it would never be possible for a company in liquidation to enforce an adjudication decision, but the type of security that would be required would probably render the benefit of ever trying to do so a futile gesture. He dismissed the idea of paying the sum into Court as a sensible solution as this deprived every party of cash flow. He made clear that the type of security that may be acceptable effectively amounted to an indemnity from the liquidator and a promise to ring fence any sum paid in settlement of an adjudicator’s decision, until a full-blown Court case had been tried. In such circumstances, it is difficult to see what benefit a liquidator would get from pursing enforcement of an adjudicator’s decision (and for that matter ever bringing an adjudication), because at best there would be some money sitting somewhere that they couldn’t use.  This pot of money would be unavailable to all parties until the outcome of Court proceedings (which could be two plus years). And notwithstanding these issues, liquidators are not known for giving indemnities!

So is this the end of such claims? For those of us who find ourselves on the other side of adjudications commenced by insolvent companies it can be difficult to know whether to fight the adjudication. If there is a genuine crossclaim or defence, is it worth spending your client’s money fighting an adjudication that is unlikely to be enforced? John Doyle may see the end of such attempts by liquidators of companies – but as we’ve almost certainly said before, only time will tell.

About the author

Andrew is one of our Partners, dealing both with construction disputes and non-contentious construction. Read more about him here.

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