John Doyle Construction Ltd (In Liquidation) v Erith Contractors Ltd
Citation: [2021] EWCA Civ 1452
Summary of facts
A sub-contractor, which was a company in liquidation, appealed against the refusal of its application for summary judgment in its proceedings to enforce an adjudicator’s decision against the respondent contractor.
The parties had entered into a sub-contract including the NEC3 standard form, which provided for adjudication. In 2012, just before completion of the works, the sub-contractor entered administration and stopped work. It entered creditors’ voluntary liquidation in 2013. A dispute arose as to the value of the final account. In 2016, the liquidators agreed to assign its claim against the contractor to a third party (H).
Adjudication
In 2018, the sub-contractor began adjudication, seeking £4 million. The contractor argued that the sub-contractor had already been paid £3 million too much. The adjudicator awarded the sub-contractor £1.2 million.
TCC’s decision (Fraser J)
The sub-contractor sought summary judgment to enforce that sum in 2020. The judge refused its application, holding that the security the sub-contractor had offered in respect of the £1.2 million sought was inadequate and that the security offered in respect of any future costs orders in the contractor’s favour if it made a claim for repayment based on its own set-off and counterclaim was also inadequate.
Court of Appeal’s decision (Lewison LJ, Coulson LJ and Edis LJ)
The Court dismissed the sub-contractor’s appeal.
Burden on claimant in application to enforce adjudicator’s decision – A company in liquidation seeking to enforce an adjudicator’s decision should take all necessary steps to ensure that the hearing was as efficient as possible and that it was clear what issues the judge was being asked to decide. Any undertakings or security it offered had to be clear, evidenced and unequivocal. The sub-contractor had failed to follow that simple course (see paras 31-33 of judgment).
Security offered in respect of sum identified in adjudicator’s decision – The sub-contractor argued that the judge had failed to address an offer of security, namely a suggestion by its liquidators that the contractor should pay the amount identified in the decision into an escrow account or into court and that that amount should serve as the necessary security for the contractor’s set-off and counterclaim. However, that had not been a clear and unequivocal offer which the judge had had to determine the adequacy of. What was required beyond all else was an undertaking by the liquidators to ring-fence the sum enforced so that it was not available for distribution in the liquidation, avoiding the risk of the contractor not recovering the sum if it was successful, Meadowside Building Developments Ltd (In Liquidation) v 12-18 Hill Street Management Co Ltd [2019] EWHC 2651 (TCC) applied. The liquidators had given no such undertaking. The liquidators could not have made an offer as to payment into an escrow account or into court, as the agreement between the sub-contractor and H provided that the sum identified in the decision had to be paid out to H. In any event, no such offer had actually been made, either in evidence or in submissions. It was questionable whether payment into court was a proper way in which security could be provided by a defendant in respect of an adjudicator’s decision in favour of a claimant company in liquidation. That was contrary to the underlying philosophy of adjudication: instead of maintaining construction industry cash flow, it would deprive a working contractor of cash, whilst leaving the money sitting uselessly in court and not available for distribution by the liquidators (see paras 38-46 & 57-58).
Security offered in respect of future costs orders in contractor’s favour – The sub-contractor argued that a deed of indemnity given by an ATE insurer had been offered to the contractor as security for any costs the contractor might be awarded on its set-off and cross-claim. It acknowledged that the draft deed which had been provided related only to security for the sub-contractor’s costs in a claim against the contractor, not the other way round, but argued that the judge had failed to have regard to an email from the insurer which indicated that the deed also included any claim brought by the contractor against the sub-contractor. That email did not answer the point that the draft deed was not the particular security arrangement required to protect the contractor; further, it was not clear how it could be relied on in law. The deed did not provide adequate security (see paras 65 & 70-75).
Insolvency Rule 6.42 – The Insolvency (England and Wales) Rules 2016 Pt 6 (6) r.6.42(4)(a) prioritised expenses incurred by the liquidator in legal proceedings over the costs and expenses of the liquidation. The sub-contractor argued that, if the deed of indemnity did not provide security for the contractor’s costs, r.6.42 did so. However, that argument was not open to the sub-contractor on appeal as it had never suggested to the judge that r.6.42 provided security. Further, there was no evidence that there would be sums available to the liquidators to disburse to the contractor as expenses, so r.6.42 had no relevance. Moreover, r.6.42(4)(a) concerned proceedings brought by the liquidators; it did not follow that any costs orders against the liquidators would be prioritised (see paras 76-81).
Entitlement of company in liquidation to judgment where set-off and cross-claim to be determined – The sub-contractor would not have been entitled to summary judgment even if the judge had erred regarding the adequacy of security. Bresco Electrical Services Ltd (In Liquidation) v Michael J Lonsdale (Electrical) Ltd [2020] UKSC 25 included obiter comments about enforcement. They did not say that a company in liquidation was entitled to enter judgment on the basis of a provisional decision where there was a continuing set-off and cross-claim. Nothing in Bresco supported the proposition that an insolvent claimant in adjudication enforcement should always be entitled to summary judgment because adjudication was futile without summary enforcement, Bresco considered, Bouygues UK Ltd v Dahl-Jensen UK Ltd [2001] 1 All ER (Comm) 1041 followed (see paras 91 & 95-97).
Stay of execution – Had the sub-contractor been entitled to summary judgment, the court would have granted a stay of execution on the whole sum. That was consistent with the authorities and with the way the court had sought to enforce judgments against claimants in a parlous financial position (see paras 103-108).
Full CoA judgment available on Westlaw.
Adam Constable QC acted for the Appellant, instructed by Pinsent Masons.
