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You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> John Doyle Construction Ltd v Erith Contractors Ltd (Rev 1) [2020] EWHC 2451 (TCC) (14 September 2020) URL: http://www.bailii.org/ew/cases/EWHC/TCC/2020/2451.html Cite as: 192 Con LR 210, [2020] EWHC 2451 (TCC), [2021] 2 All ER (Comm) 955, [2020] BLR 671 |
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BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
TECHNOLOGY AND CONSTRUCTION COURT (QB)
London, EC4A 1NL |
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B e f o r e :
____________________
| JOHN DOYLE CONSTRUCTION LIMITED (in liquidation) |
Claimant |
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| - and - |
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| ERITH CONTRACTORS LIMITED |
Defendant |
____________________
Riaz Hussein QC (instructed by DLA Piper UK LLP) for the Defendant
Hearing date: 2 July 2020
Draft distributed to parties: 9 September 2020
____________________
Crown Copyright ©
Mr Justice Fraser:
Introduction
"But solving the cash flow problem should not be regarded as the sole objective of adjudication. It was designed to be, and more importantly has proved to be, a mainstream dispute resolution mechanism in its own right, producing de facto final resolution of most of the disputes which are referred to an adjudicator."
This is taken from [13] in the decision of the Supreme Court in Michael J Lonsdale (Electrical) Ltd v Bresco Electrical Services Ltd (in liquidation) [2020] UKSC 25, a decision considered in some detail below.
The History
The involvement of Henderson Jones
"The primary business of H&J is to purchase legal claims from insolvent companies….. H&J provides a solution, by purchasing the claim from the [Insolvency Practitioner] and/or insolvent company, and commencing proceedings itself. The Insolvency Estate will receive some mixture of upfront cash consideration and deferred consideration, calculated and paid by reference to the eventual outcome."
(emphasis added)
The Henderson Jones website states that "H&J purchases litigation and arbitration claims for immediate money and/or a share of the proceeds." This is relied upon by Erith as part of its case in resisting enforcement.
"Following the assignment, H&J intends to take all reasonable steps to pursue the Assigned Claims and to achieve a recovery."
"Assigned Claims" means:
a) All debts, actions, claims, rights, demands and set-offs that the Company has against the Defendants that it is legally possible to assign and/or transfer the interest in by way of trust. Including (for the avoidance of doubt) the entitlement to any proceeds, fruits, damages, or compensation arising from such claims, or relief consequent on such claims.
b) Assigned Claims includes (but is not limited to) claims arising from and in connection to monies owed from the Defendants in relation to the Olympic Park Landscaping contract and all work done on that project."
"Consequent Proceedings means any Proceedings pursued by H&J, in relation to the Assigned Claims."
"Costs means any and all reasonable costs, liabilities, expenses, or disbursements incurred by H&J in pursuing the Assigned Claims (including but not limited to travel costs, court fees, insurance costs, payment of orders in relation to costs, counsel's costs, external solicitors' costs, and experts' costs) but not including the cost of time spent by H&J employees."
"Defendants means Erith Contractors Limited, Erith Group Limited and their Affiliates, Paul Nurton."
"Deferred Consideration means 45% of any Net Recovery, payable by H&J under clause 24.b)."
"Net Recovery means any recovery less any costs".
"3.1 In the event that, for any reason, the Assigned Claims are not effectively
legally assigned to H&J by this Deed, then:
i) The Liquidators and the Company shall hold the Assigned Claims on trust for H&J absolutely (the Assigned Claim trust, or "AC Trust");
ii) It is agreed that the Liquidators and the Company shall not bring proceedings against the Defendants in relation to the Assigned Claims, and therefore consent to H&J bringing proceedings in its own name against the Defendants;
iii) If it is necessary or desirable for the Company to be joined in any Consequent Proceedings brought by H&J as beneficiary, then the Company shall join the proceedings and shall appoint H&J as its attorney to take any necessary steps in the proceedings."
"4.1 In consideration of the Assignment, H&J agrees to pay to the Company:
a) £6,500 within 5 Business Days of entering into this Deed; and
b) Within 20 Business Days of a Net Recovery being received by H&J, H&J shall pay an amount equal to 45% of the Net Recovery to the Company, or to other person(s) designated by the Liquidators in accordance with clause 4.1(c) and by providing written notice to H&J in accordance with clause 13.1 (the Deferred Consideration).
c) The Liquidators may nominate one or more person (including bodies of persons corporate or unincorporated) to receive payment of the Deferred Consideration. Such persons nominated by the Liquidators may receive different amounts or percentages of the Deferred Consideration, as directed by the Liquidators. H&J will make payment of the Deferred Consideration as directed by the Liquidators, provided that the directions of the Liquidators are clear, unambiguous and do not involve any exercise of discretion or judgment by H&J. When nominating persons to receive payment of the Deferred Consideration, the Liquidators must provide the following relevant details to H&J:
i) Name;
ii) Address (registered address if a company);
iii) Company number (if applicable); and
iv) Bank account details (if available).
d) Once a Net Recovery has been received by H&J, the Deferred Consideration payable under clause 4.1(b) shall be held on trust by H&J for the Company, or other person(s) designated by the Liquidators, until payment is made as per 4.1.
e) It is agreed and acknowledged that payment of the Deferred Consideration to a person or persons nominated by the Liquidators pursuant to clause 4.1 shall constitute a good discharge of H&J's liability to the Company.
f) For the avoidance of any doubt, the Liquidators, the Company and H&J make no warranty or representation as to the amount of any Net Recovery that might be made (if any).
g) H&J agrees that in the event of a Net Recovery it will make reasonable efforts promptly to pay in accordance with 4.1 (including in circumstances where a further Net Recovery may be made).
h) H&J agrees that it will not sell the Assigned Claims or its interest in them pursuant to the AC Trust, other than for a reasonable cash amount."
"8.1 The conduct and control of any Consequent Proceedings (including, but not limited to, decisions to commence, settle, discontinue, or abandon the Consequent Proceedings) will be at the absolute discretion of H&J. Neither the Company nor the Liquidators shall have any right to exercise any control over any Consequent Proceedings or be involved in the decision making process.
8.2 H&J shall not be obliged to provide any information to the Company or the Liquidators in relation to any Consequent Proceedings other than:
a) notice of any Net Recovery being received and the final outcome of any Consequent Proceedings, within 5 days of such outcome (whether the Consequent Proceedings are abandoned, discontinued, compromised, settled, or resolved by a judgment, arbitration, or other determination);
b) updates on the progress of any Consequent Proceedings, necessary to allow the Liquidator to make appropriate reports to creditors.
8.3 H&J shall have no duty to the Company or the Liquidators to make or maximise a Net Recovery, or to seek any particular outcome or result in Consequent Proceedings, or to pursue any Consequent Proceedings at all.
8.4 H&J shall take all reasonable steps to ensure that any Consequent Proceedings are conducted properly and in accordance with any relevant professional standards."
(emphasis added)
1. The Deed envisaged that the assignment might not lead to an effective legal assignment, and in those circumstances provided that the claims would be held on trust for Henderson Jones.
2. Henderson Jones paid JDC £6,500 for the assigned claims, with further payment to JDC dependent upon outcome;
3. Henderson Jones had conduct and control of any proceedings pursued in relation to the assigned claims;
4. Recovery of any claims were to be paid to Henderson Jones;
5. 45% of net recovery in those subsequent proceedings (meaning recovery less costs) were to be paid out to JDC by Henderson Jones;
6. Henderson Jones would therefore retain 55% of the net recovery.
"(3) Subject to paragraph (4) in any other claim or proceedings to which this regulation applies, a damages-based agreement must not provide for a payment above an amount which, including VAT, is equal to 50% of the sums ultimately recovered by the client."
This is a point considered further below at [93].
"3.3 H&J has not and will not provide any legal advice or legal services, or services or advice of any other kind (including administration or debt collection services or financial services/assistance) to the Company or the Office Holders or any of their Affiliates; and
3.4 H&J has not and will not carry out any Legal Activities, Reserved Legal Activities, or Prohibited Separate Business Activities for or on behalf of the Company or the Office Holders or any of their Affiliates".
1. The works took place, and JDC entered administration, in 2012.
2. In 2013 JCD went into liquidation, and in December 2016 the liquidators entered into the Deed of Assignment with Henderson Jones.
3. On 22 January 2018 the adjudication was commenced.
4. On 15 June 2018 Mr Aeberli, the adjudicator appointed by the ICE, decided the dispute, and on 29 June 2018 he corrected his decision in certain non-material respects.
5. On 31 July 2018 judgment at first instance was handed down in Lonsdale v Bresco [2018] EWHC 2043 (TCC). In those proceedings I granted an injunction preventing continuation of an adjudication by a company in liquidation, holding that there was no jurisdiction on the part of the adjudicator as a result of the insolvency.
6. On 1 January 2019 the Court of Appeal handed down its judgment in Bresco v Lonsdale [2019] EWCA Civ 27. Coulson LJ delivered the unanimous judgment of the court, found that there was jurisdiction on the part of the adjudicator if a company was in liquidation, but upheld the grant of the injunction on the grounds that the utility of the situation was such that the court would not enforce a decision in such circumstances.
7. On 10 October 2019 judgment was handed down in Meadowside v Hill Street Management [2019] EWHC 2651 (TCC). Mr Recorder Constable QC found that, in some circumstances, insolvent parties could put themselves within what he called "the exception in Bresco" and provide adequate security for later repayment of a sum awarded in an adjudicator's decision. However, he did not order summary judgment in that case, and also found the specific arrangements entered into between the company in liquidation and a third party (in a similar though not identical position to Henderson Jones) to be contrary to the 2013 Regulations and champertous.
8. On 13 December 2019 the liquidators, Henderson Jones and JDC entered into the Deed of Agreement. On 20 December 2019, JDC's solicitors wrote and offered security to Erith by way of both a letter of credit and ATE insurance in respect of any potential repayment that might be required as a result of any substantive proceedings.
9. On 9 April 2020 JDC issued the claim form seeking to enforce the decision in its favour from June 2018.
10. On 17 June 2020 the Supreme Court overturned the Court of Appeal decision in Bresco, allowing a company in liquidation to bring its dispute to adjudication. It did, however, also state per Lord Briggs at [64] that:
"The reasons why summary enforcement will frequently be unavailable are set out in detail in Bouygues (UK) Ltd v Dahl Jensen (UK) Ltd [2000] EWCA Civ 1041, paragraphs 29-35 per Chadwick LJ. As he says, the court is well-placed to deal with those difficulties at the summary judgment stage, simply by refusing it in an appropriate case as a matter of discretion, or by granting it, but with a stay of execution."
1. In what circumstances will a company in liquidation be entitled to summary judgment on a valid adjudicator's decision in its favour?
2. Are those circumstances present here, such that JDC is entitled to summary judgment?
3. If so, should the court order a stay of execution, as was done in Bouygues v Dahl Jensen, in light of the Supreme Court decision in Bresco and applying the principles in Wimbledon Construction Company 2000 Ltd v Derek Vago [2005] EWHC 1086 (TCC)?
Issue 1 In what circumstances will a company in liquidation be entitled to summary judgment on a valid adjudicator's decision in its favour?
"[29] The second question raised by the appeal is whether the judge was right to give summary judgment to Dahl-Jensen for the amount which the adjudicator had decided Bouygues should pay. In the ordinary case I have little doubt that an adjudicator's determination under section 108 of the 1996 Act, or under contractual provisions incorporated by that section, ought to be enforced by summary judgment. The purpose of the Act is to provide a basis upon which payment of an amount found by the adjudicator to be due from one party to the other (albeit that the determination is capable of being re-opened) can be enforced summarily. But this is not an ordinary case. At the date of the application for summary judgment - indeed at the date of the reference to adjudication - Dahl-Jensen was in liquidation.
[30] In those circumstances rule 4.90 of the Insolvency Rules 1986 has effect. The rule is in these terms, so far as material:
"(1) This rule applies where, before the company goes into liquidation there have been mutual credits, mutual debts or other mutual dealings between the company and any creditor of the company proving or claiming to prove for a debt in the liquidation.
(2) An account shall be taken of what is due from each party to the other in respect of the mutual dealings and the sums due from one party shall be set off against the sums due from the other.
(3) ...
(4) Only the balance (if any) of the account is provable in the liquidation. Alternatively (as the case may be) the amount shall be paid to the liquidator as part of the assets."
[31] That rule is made under section 411 of the Insolvency Act 1986. Subsection (2) of that section - and Schedule 8, paragraph 12 - provide that the Lord Chancellor may make provision by rules or regulations as to the debts that may be proved in the winding up. There is no doubt that the rule has statutory force. It applies wherever there have been mutual dealings, giving rise to mutual obligations and mutual credits, between a company which subsequently goes into liquidation and another party.
[32] The effect of the rule was explained by Lord Hoffman in his speech in the House of Lords in Stein v Blake [1996] 1 AC 243. In that appeal Lord Hoffman was addressing the provisions of section 323 of the Insolvency Act 1986, which is applicable in an individual insolvency or bankruptcy. But the provisions of section 323 of the Act and Rule 4.90 of the Rules are indistinguishable. The rule-making body, in 1986, incorporated into corporate insolvency provisions which had, for many centuries, been part of the law in relation to individual bankruptcy. What Lord Hoffman had to say about section 323 of the Act is equally applicable to corporate insolvency; to which rule 4.90 applies. At page 251 D-F Lord Hoffman explained the difference between bankruptcy set-off and legal set-off outside bankruptcy:
"Bankruptcy set-off, on the other hand, affects the substantive rights of the parties by enabling the bankrupt's creditor to use his indebtedness to the bankrupt as a form of security. Instead of having to prove with other creditors for the whole of his debt in the bankruptcy, he can set off pound for pound what he owes the bankrupt and prove for or pay only the balance. So in Forster v Wilson (1843) 12 M & W. 191, 204, Parke B said that the purpose of insolvency set-off was 'to do substantial justice between the parties'. Although it is often said the justice of the rule is obvious, it is worth noticing that it is by no means universal. It has however been part of the English law of bankruptcy since at least the time of the first Queen Elizabeth."
[33] The importance of the rule is illustrated by the circumstances in the present case. If Bouygues is obliged to pay to Dahl-Jensen the amount awarded by the adjudicator, those monies, when received by the liquidator of Dahl-Jensen, will form part of the fund applicable for distribution amongst Dahl-Jensen's creditors. If Bouygues itself has a claim under the construction contract, as it currently asserts, and is required to prove for that claim in the liquidation of Dahl-Jensen, it will receive only a dividend pro rata to the amount of its claim. It will be deprived of the benefit of treating Dahl-Jensen's claim under the adjudicator's determination as security for its own cross-claim.
[34] Lord Hoffman pointed out, at page 252 of Stein v Blake that the bankruptcy set-off requires an account to be taken of liabilities which at the time of the bankruptcy may be due but not yet payable, or which may be unascertained in amount or subject to contingency. Nevertheless, the insolvency code requires that the account shall be deemed to have been taken, and the sums due from one party shall be set off against the other, as at the date of insolvency order. Lord Hoffman pointed out also that it was an incident of the rule that claims and cross-claims merge and are extinguished; so that, as between the insolvent and the other party, there is only a single claim - represented by the balance of the account between them. In those circumstances it is difficult to see how a summary judgment can be of any advantage to either party where, as the 1996 Act and paragraph 31 of the Model Adjudication Procedure make clear, the account can be reopened at some stage; and has to be reopened in the insolvency of Dahl-Jensen.
[35] Part 24, rule 2 of the Civil Procedure Rules enables the court to give summary judgment on the whole of a claim, or on a particular issue, if it considers that the defendant has no real prospect of successfully defending the claim and there is no other reason why the case or issue should be disposed of at a trial. In circumstances such as the present, where there are latent claims and cross-claims between parties, one of which is in liquidation, it seems to me that there is a compelling reason to refuse summary judgment on a claim arising out of an adjudication which is, necessarily, provisional. All claims and cross-claims should be resolved in the liquidation, in which full account can be taken and a balance struck. That is what rule 4.90 of the Insolvency Rules 1986 requires.
[36] It seems to me that those matters ought to have been considered on the application for summary judgment. But the point was not taken before the judge and his attention was not, it seems, drawn to the provisions of the Insolvency Rules 1986. Nor was the point taken in the notice of appeal. Nor was it embraced by counsel for the appellant with any enthusiasm when it was drawn to his attention by this Court. In those circumstances - and in the circumstances that the effect of the summary judgment is substantially negated by the stay of execution which this court will impose - I do not think it right to set aside an order made by the judge in the exercise of his discretion. I too would dismiss this appeal."
"[3] The Bresco appeal raises directly the issue of whether an adjudicator can ever have the jurisdiction to deal with a claim by a company in insolvent liquidation. But there was also a related issue, concerned with whether (assuming that the adjudicator had the necessary jurisdiction) such an adjudication could ever have any utility and, if not, whether an injunction preventing the continuation of what would be a futile exercise was justified in any event."
"[37] I consider that there is a basic incompatibility between adjudication and the regime set out in the Rules. The former is a method of obtaining an improved cashflow quickly and cheaply. The latter is an abstract accounting exercise, principally designed to assist the liquidators in recovering assets in order to pay a dividend to creditors. Rule 14.25 envisages the taking of a detailed account as between the company and the creditor, and the careful calculation of a net balance one way or the other, or quantifying the company's net claim against a creditor. By contrast, adjudication is a rough and ready process which Dyson J (as he then was) said in Macob Civil Engineering Ltd v Morrison Construction Ltd [1999] BLR 93 was "likely to result in injustice". They are therefore very different regimes.
[38] This incompatibility can be seen in the different processes that each regime entails; in a comparison of the results that may be available; and in a consideration of the wider issues that could arise if companies in insolvent liquidation regularly sought to refer claims to adjudication."
"[43] This incompatibility is also demonstrated by looking at what might happen if a company in insolvent liquidation was entitled to the sum found due by the adjudicator, but where the responding party has a cross-claim. As Chadwick LJ pointed out in Bouygues (paragraph 20 above), if Bouygues had to prove their claim in Dahl-Jensen's liquidation, it would only receive a dividend, and would be deprived of the benefit of treating Dahl-Jensen's claim under the adjudicator's determination as security for its own cross-claim. Lonsdale would be exposed to precisely the same danger here if they sought to prove their own claim (paragraph 10 above) in Bresco's liquidation. For that reason, Chadwick LJ said that, ordinarily, summary judgment to enforce the adjudicator's decision would not be available. He only upheld the order for summary judgment in that case because the point had not been taken before the judge and he could achieve the necessary result by staying execution.
[44] The point about the lack of utility of an adjudication involving a company in liquidation was also picked up by HHJ Purle in Philpott. In that case, at [30], he said:
"The adjudication will produce at most a temporary obligation, more in the nature of an interim payment. However the contractual right to an adjudication is there. Whether or not the court would enforce any order against the company seems inconceivable, as this would defeat the requirement of pari passu distribution, and it may therefore that were the school to make an adjudication application, that might be met by an application for a stay by the liquidators on conventional insolvency grounds."
[45] Accordingly, these authorities acknowledge that a decision of an adjudicator in favour of a company in liquidation, like Bresco, would not ordinarily be enforced by the court. HHJ Purle said such enforcement was "inconceivable"; that may put it too high but, in my view, judgment in favour of a company in insolvent liquidation (and no stay), in circumstances where there is a cross-claim, will only be granted in an exceptional case. Indeed, on behalf of Bresco, Mr Arden QC appeared to accept that either a refusal of summary judgment or a stay was the most likely outcome in such a situation.
[46] As a result of this, I consider that Mr Crangle was right to say that a reference to adjudication of a claim by a contractor in insolvent liquidation, in circumstances where there is a cross-claim, would be incapable of enforcement and therefore "an exercise in futility".
(emphasis added)
"[60] That very steep hurdle is not surmounted, either generally (in the context of insolvency set-off) or on the particular facts of this case. For reasons already explained it is simply wrong to suggest that the only purpose of construction adjudication is to enable a party to obtain summary enforcement of a right to interim payment for the protection of its cash flow, although that is one important purpose. In the context of construction disputes adjudication has, as was always intended, become a mainstream method of ADR, leading to the speedy, cost effective and final resolution of most of the many disputes that are referred to adjudication. Dispute resolution is therefore an end in its own right, even where summary enforcement may be inappropriate or for some reason unavailable.
[61] Nor is there any basis for a conclusion that this beneficial means of dispute resolution is incompatible with the insolvency process, or with the requirement to deal with cross-claims in insolvency by set-off, still less an exercise in futility. First, as already described, the process of proof of debt in insolvency shares many of the attractive features of adjudication, in terms of speed, simplicity, proportionality and economy, but adjudication has the added advantage that a construction dispute arising during an insolvency will be more amenable to resolution by a professional construction expert than by many liquidators.
[62] In many cases, disputed cross-claims needing to be resolved as a prelude to a final arithmetical set-off account will both, or all, arise under the same construction contract, as in the present case, because all the mutual dealings between the parties will have arisen under the aegis of that single contract. Even if they arise under more than one construction contract, the adjudicator will be better placed than most liquidators to resolve them. The Scheme contains provision whereby that may be achieved by consent, and the need to take cross-claims into account as defences (by way of set-off) may well mean that there is in reality one single dispute within Akenhead J's helpful rule of thumb in the Witney Town Council case.
[63] It is true that the effect of insolvency set-off may mean that cross-claims raise issues wholly outwith the purview of one or more construction contracts, such as the apportionment of liability for personal injuries, or liability under mutual dealings between the same parties in some other commercial field. In such a case the adjudicator will need to have regard to them, if they amount to a defence to the disputed construction claim being referred, but may have simply to make a declaration as to the value of the claim, leaving the unrelated cross-claim to be resolved by some other means. That is a remedy well within the adjudicator's powers. Nonetheless the adjudicator's resolution of the construction dispute referred by the liquidator may be of real utility to the conduct of the process of set-off within the insolvency process as a whole.
[64] Thus it is no answer to the utility (rather than futility) of construction adjudication in the context of insolvency set-off to say that the adjudicator's decision is unlikely to be summarily enforceable. The reasons why summary enforcement will frequently be unavailable are set out in detail in Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd [2001] 1 All ER (Comm) 1041, paras 29-35 per Chadwick LJ. As he says, the court is well-placed to deal with those difficulties at the summary judgment stage, simply by refusing it in an appropriate case as a matter of discretion, or by granting it, but with a stay of execution. There is in those circumstances no need for an injunction, still less a need to prevent the adjudication from running its speedy course, as a potentially useful means of ADR in its own right.
[65] Furthermore it will not be in every case that summary enforcement will be inappropriate. There may be no dispute about the cross-claim, and the claim may be found to exist in a larger amount, so that there is no reason not to give summary judgment for the company for the balance in its favour. Or the disputed cross-claim may be found to be of no substance. Or, if the cross-claim can be determined by the adjudicator, because the claim and cross-claim form part of the same "dispute" under the contract, the adjudicator may be able to determine the net balance. If that is in favour of the company, there is again no reason arising merely from the existence of cross-claims why it should not be summarily enforced.
[66] True it is that the adjudicator may over-value the net balance in favour of the company, so that summary enforcement may leave the respondent to the reference having first to establish a true balance in its favour and then to pursue it by proof (or possibly as a liquidation expense) against an under-funded liquidation estate. But over-valuation is a problem that may arise in any liquidation context, even where there is no cross-claim. There is no suggestion that, absent insolvency set-off, adjudication is ordinarily futile merely because the company making the reference is in liquidation or distributing administration.
[67]. The proper answer to all these issues about enforcement is that they can be dealt with, as Chadwick LJ suggested, at the enforcement stage, if there is one. In many cases the liquidator will not seek to enforce the adjudicator's decision summarily. In others the liquidator may offer appropriate undertakings, such as to ring-fence any enforcement proceeds: see the discussion of undertakings in the Meadowside case. Where there remains a real risk that the summary enforcement of an adjudication decision will deprive the respondent of its right to have recourse to the company's claim as security (pro tanto) for its cross-claim, then the court will be astute to refuse summary judgment".
(emphasis added)
"But Parliament has not abolished arbitration and litigation construction disputes. It has merely introduced an intervening provisional stage in the dispute resolution process. Crucially, it has made it clear that decisions of adjudicators are binding and are to be complied with until the dispute is finally resolved."
"[35]….In circumstances such as the present, where there are latent claims and cross-claims between parties, one of which is in liquidation, it seems to me that there is a compelling reason to refuse summary judgment on a claim arising out of an adjudication which is, necessarily, provisional. All claims and cross-claims should be resolved in the liquidation, in which full account can be taken and a balance struck. That is what rule 4.90 of the Insolvency Rules 1986 requires."
1. Whether the dispute in respect of which the adjudicator has issued a decision is one in respect of the whole of the parties' financial dealings under the construction contract in question, or simply one element of it.
2. Whether there are mutual dealings between the parties that are outside the construction contract under which the adjudicator has resolved the particular dispute.
3. Whether there are other defences available to the defendant that were not deployed in the adjudication.
4. Whether the liquidator is prepared to offer appropriate undertakings, such as ring-fencing the enforcement proceeds, and/or where there is other security available.
5. Whether there is a real risk that the summary enforcement of an adjudication decision will deprive the paying party of security for its cross-claim.
"It is suggested that Levolux provides clear guidance as to the position when a party seeks to set off against an adjudicator's decision. In general terms, the courts will view such an argument as an attempt to frustrate the 1996 Act and, in the ordinary case, will not therefore permit it. This is particularly so where, as in Levolux, the subject matter of the purported set off had implicitly been dealt with in the adjudicator's decision."
(emphasis added)
"24.2 The court may give summary judgment against a claimant or defendant on the whole of a claim or on a particular issue if –
(a) it considers that –
(i) that claimant has no real prospect of succeeding on the claim or issue; or
(ii) that defendant has no real prospect of successfully defending the claim or issue; and
(b) there is no other compelling reason why the case or issue should be disposed of at a trial."
"Applying Akenhead J's useful rule of thumb, it appears that a dispute about a cross-claim relied on as a set-off by way of defence to the claim referred will be part of the dispute raised by the reference, because the claim cannot be decided without consideration of the cross-claim by way of defence".
1. The decision of the adjudicator would have to resolve (or take into account) all the different elements of the overall financial dispute between the parties to the construction contract. Where, as here, the dispute referred was the valuation of the referring party's final account, summary judgment will potentially be available (dependent upon the other considerations below). If the dispute referred is a more narrowly defined one, such as the valuation of a single component part of an interim payment, or one single head of claim, then it will not.
2. Mutual dealings on other contracts, or other defences, if they have not been taken into account by the adjudicator, will be taken into account by the court on the summary judgment application. I draw this conclusion from what Lord Briggs says at [65], where he stated "there may be no dispute about the cross-claim, and the claim may be found to exist in a larger amount, so that there is no reason not to give summary judgment for the company for the balance in its favour."
3. There is no "real risk" that summary enforcement of the adjudicator's decision would deprive the paying party of security for its cross-claim.
Issue 2 Are those circumstances present here, such that JDC is entitled to summary judgment?
The decision in Meadowside v Hill Street Management
"[11] As explained by Mr McMahon, the managing director of Pythagoras, in his witness statement on behalf of Meadowside, Pythagoras is a company which acts on behalf of various administrators and liquidators in relation to construction contracts. Indeed, Pythagoras acted as agents for the liquidators in Bresco. Mr McMahon, an insolvency lawyer by background, explains in summary that when appointed as agent Pythagoras reviews what might be owed by considering the company records and, amongst other things, seeks to ascertain what sums are owed under outstanding final accounts. If Pythagoras establishes that monies are owed to the insolvent company, it takes steps to recover those sums on behalf of the company, and generally does so by funding the pursuit on behalf of the insolvent company because the insolvent companies are usually unable to do so. The availability of adjudication process is part of Pythagoras' business model."
"[55] So, in circumstances where there is a satisfactory guarantee in relation to any sum awarded, and/or in circumstances where the sum is temporarily ringfenced pending its becoming finally due in either further proceedings or as a result of the responding party choosing within a period of time not to seek to overturn the adjudicator's decision, the mischief which is at the heart of the justification for not enforcing is eliminated. The responding party retains the security for its cross-claim. Even where there is no cross-claim, it seems to me such security is likely to be needed to permit a company in liquidation to enforce, so as to prevent the usual application of the principles in Wimbledon Construction Company 2000 Limited v Vago [2005] BLR 374 (which do not depend upon the existence of a cross-claim to apply).
[56] It is right, of course, that as a consequence of enforcement the onus would be on the responding party to take steps to justify its substantive entitlement to that security, and issues arising out of this were addressed in Bresco under 'Wider Considerations'."
"Thirdly, even if we assume that the company in insolvent liquidation is successful in the adjudication and that, for whatever reason, summary judgment is granted, the responding party would then have to bring its own claim in court to overturn the result of the adjudication. That would require yet more costs to be incurred by the responding party to regularise its position and recover the sums due from a company in insolvent liquidation. The obvious risks would be that any recovery may be rendered difficult or impossible by the liquidation, and that further costs would be lost in any event. Security for costs would not be available (because on this basis the responding party would be the claimant). Again, that seems to me to be wrong as a matter of principle."
(emphasis added)
"[71] Breaking this down, the concern (on the assumption that a decision requiring payment to the company in liquidation has been enforced) expressed by Coulson LJ is that: (1) Any recovery of the sum paid would be rendered difficult or impossible by the liquidation; (2) Further costs would be incurred seeking to recover the sum; (3) Security for costs would not be available, as the responding party would be the claimant.
[72] Each of these obviously applies in the ordinary situation of a company in liquidation where no particular offers of security are provided.
[73] However, the first concern (difficulty or impossibility of the recovery of the sum) is no longer a concern if there is adequate security for and/or ring fencing of the sum awarded.
[74] The second and third concerns relate to costs. In this case, Pythagoras has offered security for costs by way of guarantee, and/or by way of ATE insurance. There is, of course, the question of the adequacy of that guarantee and/or insurance in the particular circumstances of this case, which I consider further in Section E".
"Similarly it is inherent in the adjudication procedure that a party may be put to expense in having an incorrect decision put right in later litigation (or arbitration), at least part of which will usually be irrecoverable even if the litigation succeeds."
6.42.—(1) All fees, costs, charges and other expenses incurred in the course of the winding up are to be treated as expenses of the winding up.
(2) The expenses of the winding up are payable out of—
(a) assets of the company available for the payment of general creditors, including—
(i) proceeds of any legal action which the liquidator has power to bring in the liquidator's own name or in the name of the company,
(ii) proceeds arising from any award made under any arbitration or other dispute resolution procedure which the liquidator has power to bring in the liquidator's own name or in the name of the company,
(iii) any payments made under any compromise or other agreement intended to avoid legal action or recourse to arbitration or to any other dispute resolution procedure, and
(iv) payments made as a result of an assignment or a settlement of any such action, arbitration or other dispute resolution procedure in lieu of or before any judgment being given or award being made; and
…
(3) The expenses associated with the prescribed part must be paid out of the prescribed part.
(4) Subject as provided in rules 6.44 to 6.48, the expenses are payable in the following order of priority—
(a) expenses which are properly chargeable or incurred by the liquidator in preserving, realising or getting in any of the assets of the company or otherwise in the preparation, conduct or assignment of any legal proceedings, arbitration or other dispute resolution procedures, which the liquidator has power to bring in the liquidator's own name or bring or defend in the name of the company or in the preparation or conduct of any negotiations intended to lead or leading to a settlement or compromise of any legal action or dispute to which the proceedings or procedures relate;
The mechanisms of security offered in the instant case
"For the reasons set out below, it is the Claimant's case that it has put arrangements in place that would allow it to bring itself within the exception to the general rule against enforcement, identified in Meadowside v 12-18 Hill Street Management Company Ltd [2019] EWHC 2651 ("Meadowside"). It is offering security through Henderson & Jones (H&J) on the basis detailed below. It is submitted that the security offered is adequate to meet the legitimate concerns of the Court of Appeal in Bresco and to provide, what the Supreme Court in Bresco described as, reasonable assurances to the Defendant that, should it successfully overturn the Adjudicator's Decision in later proceedings, the Claimant will be able to (i) repay the capital sum and (ii) meet any adverse costs orders."
(emphasis added)
"The vice, if any, of the agreement lies in the introduction of the third party. It appears from the face of the agreement not as an obligation, but as a contemplated possibility, that the cause of action against C.B.N. might be sold by Credit Suisse to a third party, for a sum of U.S. $800,000. This manifestly involved the possibility, and indeed the likelihood, of a profit being made, either by the third party or possibly also by Credit Suisse, out of the cause of action. In my opinion this manifestly "savours of champerty," since it involves trafficking in litigation - a type of transaction which, under English law, is contrary to public policy. I take the definition of "champerty" (etymologically derived from "campi partitio") from Halsbury's Laws of England, 4th ed., vol. 9 (1974) para. 400:
"Champerty is a particular kind of maintenance, namely maintenance of an action in consideration of a promise to give the maintainer a share in the proceeds or subject matter of the action."
(emphasis added)
However, the use of some phrases and words is rather different now than nearly 40 years ago. Given the evil of trafficking in persons, in my judgment trafficking in litigation is an expression which ought now to be avoided. Umbrage is taken by Mr Henderson in some of his later evidence at what he considers to be imputations on his firm's professionalism, and he explains that all the members of the firm are qualified solicitors and/or chartered accountants and have high business standards.
"We, Lloyds Bank PLC ("Lloyds"), irrevocably agree to issue a letter of credit in the form attached as Schedule 1 to this letter (the "Letter of Credit") in the event that:
1. The Court grants enforcement of the decision of Peter Aeberli in his capacity as Adjudicator dated 15 June 2018 (as corrected by the Adjudicator on 29 June 2018) in favour of John Doyle in the sum of £1,216,178.61 (or at whatever other amount the court deems appropriate) plus interest;
2. the amount awarded by the Court (the "Decision Amount") has been paid by Erith to the Applicant [Henderson Jones];
3. the Applicant has submitted a letter of credit application form to Lloyds in the bank's standard form; and
4. the Decision Amount has been paid into the Applicant's account with Lloyds."
"[27] Again I cannot with respect agree. Of course it does not follow that insurers would avoid but the difficulty is that neither the defendants nor the court has any information with which to judge the likelihood of such avoidance. One knows that ATE insurers do seek to avoid their policies if they consider it right to do so, see Persimmon Homes Ltd v Great Lakes Reinsurance (UK) Plc [2010] EWHC 1705 (Comm), [2011] Lloyd's Rep IR 101 in which a successful defendant was unable to recover its costs from ATE insurers. The landscape after trial may be very different from the landscape as it appears to be at present and it is unsatisfactory to have to speculate.
[28] The judge felt he could rely on the fact that the proposals to insurers were made by Joint Liquidators who are independent professional insolvency office-holders, and who investigated the claims with the assistance of experienced solicitors and counsel providing a high level of objective professional scrutiny. All this is, of course, true but the best professional advice cannot cater for cases of non-disclosure of matters which the professionals do not know.
[29] Neither the defendants nor the court have been provided with the placing information put before the insurers but, even if that had been provided, it is unlikely that the court could be satisfied that the prospect of avoidance is illusory. Even at the jurisdictional stage of considering security for costs, the defendants must, as Mance LJ said in Nasser, "be entitled to some assurance that [the insurance] was not liable to be avoided for misrepresentation or non-disclosure". I cannot see that on the facts of this case these defendants have that assurance. It follows therefore that there is reason to believe that the Companies will be unable to pay the defendants' costs if ordered to do so and that the jurisdictional requirement of CPR 25.13 is satisfied."
(emphasis added)
"Decisions on points of law by more senior courts have to be accepted by more junior courts. Otherwise, the law becomes anarchic, and it loses coherence clarity and predictability."
Issue 3 would a stay of execution be granted in any event?
"(1) Where a judgment is given or an order made for the payment by any person of money and the court is satisfied on an application made at the time of the judgment, or order, or at any time thereafter by the judgment debtor or other party liable to execution –
(a) that there are special circumstances which render it inexpedient to enforce the judgment or order….
…. the court may by order stay the execution of the judgment or order…. either absolutely or for such period and subject to such conditions as the court thinks fit."
"[26] In a number of the authorities which I have cited above the point has been made that each case must turn on its own facts. Whilst I respectfully agree with that, it does seem to me that there are a number of clear principles which should always govern the exercise of the court's discretion when it is considering a stay of execution in adjudication enforcement proceedings. Those principles can be set out as follows:
a) Adjudication (whether pursuant to the 1996 Act or the consequential amendments to the standard forms of building and engineering contracts) is designed to be a quick and inexpensive method of arriving at a temporary result in a construction dispute.
b) In consequence, adjudicators' decisions are intended to be enforced summarily and the claimant (being the successful party in the adjudication) should not generally be kept out of its money.
c) In an application to stay the execution of summary judgment arising out of an Adjudicator's decision, the Court must exercise its discretion under Order 47 with considerations a) and b) firmly in mind (see AWG Construction Services v Rockingham Motor Speedway [2004] EWHC 888 (TCC)).
d) The probable inability of the claimant to repay the judgment sum (awarded by the Adjudicator and enforced by way of summary judgment) at the end of the substantive trial, or arbitration hearing, may constitute special circumstances within the meaning of Order 47 rule 1(1)(a) rendering it appropriate to grant a stay (see Herschell Engineering Ltd v Breen Property Ltd (unreported) 28 July 2000, TCC).
e) If the claimant is in insolvent liquidation, or there is no dispute on the evidence that the claimant is insolvent, then a stay of execution will usually be granted (see Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd [2000] BLR 522 (CA) and Rainford House Ltd v Cadogan Ltd (unreported) 13 February 2001).
f) Even if the evidence of the claimant's present financial position suggested that it is probable that it would be unable to repay the judgment sum when it fell due, that would not usually justify the grant of a stay if:
(i) the claimant's financial position is the same or similar to its financial position at the time that the relevant contract was made (see Herschell); or
(ii) The claimant's financial position is due, either wholly, or in significant part, to the defendant's failure to pay those sums which were awarded by the adjudicator (see Absolute Rentals v Glencor Enterprises Ltd (unreported) 16 January 2000, TCC)."
(emphasis added)
Value Added Tax
Conclusion