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When insolvency may not be a bar to adjudication enforcement

Gateley Legal

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A recent decision in the Technology & Construction Court (TCC) has left the door slightly ajar for parties who, despite being insolvent, have the benefit of an Adjudicator’s decision in their favour for a specified sum of money.

By way of a brief reminder, an Adjudicator’s decision will generally be enforced by the Court on an interim basis (that is to say prior to the parties having the dispute ultimately determined by Court proceedings, arbitration or negotiation). 

However, one ground on which a Court may refuse to enforce is where the beneficiary of the decision is (or is likely to be) insolvent. The general thinking behind this approach is that there would be a genuine risk that a party with limited or no funds could fold before the paying party has an opportunity to commence court/arbitration proceedings to recover what it considers to be an overpayment on an interim basis.

Facts of the case

In the instant case [1], Meadowside (a company in insolvent liquidation) commenced and succeeded in an adjudication, obtaining an award of £32k. 

The responding party to the adjudication (Hill Street Management) refused to take any active part in the adjudication on the grounds that due to Meadowside’s insolvency, the adjudicator lacked jurisdiction and any award would be unenforceable.

Unsurprisingly, given its lack of participation in the adjudication, Hill Street refused to make payment of the award sum. Meadowside then commenced proceedings to have the decision enforced by the Court. 

Adam Constable QC, sitting in the TCC, heard the proceedings. He considered that, in situations where the adjudication decision dealt with the full extent of the parties’ mutual dealings (i.e. a final account assessment) then, as a matter of public policy, a Court should be slow to refuse enforcement simply due to a party’s insolvency, as this would hinder a liquidator’s statutory duty to ascertain and recover debts for the benefit of creditors. 

However, that principle of public policy does not give “carte blanche” that all decisions will be enforced. Ultimately, whilst it will be a matter of fact and degree on a case by case basis, the liquidator will have to demonstrate that “adequate security” is in place to cover the award sum and any potential adverse costs orders in the event that the sum is reversed in a final court/arbitration decision. 

The Court did not specify what that “adequate security” would look like, but could take the form of the liquidator “ringfencing” any award and/or putting in place bonds/guarantees/after-the-event insurance.

Outcome

The decision was not enforced by the Court, as the third party pursuing Meadowside’s debt refused to provide details of its funding agreement. In those circumstances, it appeared that its "fee” was likely to be an illegal agreement as it would be paid more than 50% of any sums recovered. 

However, the principle to take from this decision is that insolvency will not necessarily be a bar to adjudication enforcement, albeit it will be fact sensitive. 

[1] Meadowside Building Developments Ltd v 12-18 Hill Street Management Company Ltd [2019] EWHC 2651 (TCC)

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