This case note by Arthur Graham-Dixon summarises and discusses some of the implications of the recent Court of Appeal judgment in John Doyle Construction Limited (in liquidation) v Erith Contractors Limited [2021] EWCA Civ 1452. It focuses on the obiter views given by Coulson and Lewison LJJ on the enforceability of particular adjudication awards (for example, those determining a final account) by insolvent companies.
Setting the decision in context
It is useful to set the case within context. Below, the most significant decisions on this topic are summarised, before turning to the judgment in John Doyle.
1.In Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd [2000]BLR 522, paragraph 35, Chadwick LJ held that an adjudication decision, being provisional in nature, does not resolve the claims and cross-claims in an insolvency and so should not be summarily enforced. In other words, the requirement under the insolvency regime for a one-off payment of a net balance cannot be reconciled with enforcing temporarily binding adjudication decisions.
2. In Bresco Electrical Services Ltd (In Liquidation) v Michael J Lonsdale (Electrical) Ltd [2019] EWCA Civ 27, Coulson LJ discussed Bouygues and subsequent case law, and held that “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”: paragraph 45. Coulson LJ went on to state that this rendered futile any (unexceptional) adjudication proceedings brought by an insolvent company faced with a cross-claim: paragraph 46.
3. In Meadowside Building Developments Ltd (in liquidation) v 12-18 Hill Street Management Company Ltd [2019] EWHC 2651 (TCC), Adam Constable QC (sitting as a deputy High Court judge) sought to grapple with what paragraph 45 of Bresco (CA) envisaged as an “exceptional case”: see paragraph 42(2) of Meadowside. The enforcement dispute in Meadowside concerned a final account adjudication. The defendant considered itself to be owed money by the claimant and had written to the adjudicator to assert that it was a net creditor (not a debtor): paragraphs 21-22. There was no dispute that the defendant’s position was bona fide (contrast Westshield Ltd v Whitehouse [2013] EWHC 3576 (TCC) at paragraph 18). One of the main debates in Meadowside was whether the Court of Appeal in Bresco had envisaged that “exceptional circumstances” could include the enforcement of a (disputed) final account adjudication. Adam Constable QC seems to have suggested that it could, provided that appropriate security was given to ensure that a defendant would not be deprived of the security inherent in the insolvency regime: paragraph 87.
4. In Bresco Electrical Services Limited (in liquidation) v Michael J Lonsdale [2020] UKSC 25, in a unanimous judgment Lord Briggs held that the Court of Appeal below had been wrong to decide that adjudication proceedings brought by an insolvent company, faced with a cross-claim, were generally futile. Lord Briggs went on to consider (obiter) the circumstances in which an adjudication decision might be enforced by an insolvent company. In paragraph 65, Lord Briggs endorsed the approach in Meadowside: “Furthermore it will not be in every case that summary enforcement will be inappropriate… [For example,] 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”. Lord Briggs’ statement in paragraph 65 that there is “no reason… why it should not be summarily enforced” is then caveated in the following two paragraphs, in particular paragraph 67, which reiterates the reasoning in Meadowside: “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”.
5. In the most recent development in October this year, John Doyle, Coulson and Lewison LJJ have both suggested (obiter) that there is no general final account exception, contrary to possible suggestions to that effect in Meadowside and Bresco (SC); and that the law is essentially as stated in Bouygues: see in particular paragraphs 89-92 and 143-145 of John Doyle. The two surviving examples of “exceptional circumstances” where enforcement may be appropriate are “where there is no dispute about the cross-claim, and… where the disputed cross-claim may be found to be of no substance”: paragraph 89 of John Doyle.
On the face of things, therefore, John Doyle takes us largely back to the judgment in Bouygues, that the insolvency regime cannot be reconciled with enforcing temporarily binding decisions.
What next?
There are three points arising out of John Doyle which may merit some further debate.
First, it is said in John Doyle that Bresco (SC) and Meadowside do not, on scrutiny, support a case that a (final account) adjudication decision remaining provisional in effect can be enforced. There are, however, a number of paragraphs in Meadowside which do seem to contemplate the enforcement of a provisional adjudication decision, for example paragraphs 51, 55-56, 69, 76, and 83. Accordingly, it would appear uncertain whether Lord Briggs in Bresco (SC) was or was not endorsing such an approach.
Second, the analysis in John Doyle leaves unresolved the nuisance which the view taken in Meadowside arguably sought to prevent, i.e. a situation where an unsuccessful defendant to (final account) adjudication proceedings brought by an insolvent company neither has to comply with the adjudication decision nor has any incentive to challenge its findings. Even if the adjudication is not useless as a result, it seems less useful. The solution referred to in Meadowside of ring-fencing the enforcement sum and imposing a time limit on the defendant to commence its own proceedings challenging the award is designed both to call the defendant’s bluff (will it really contest the award?) but also to protect the defendant if it really does then challenge the adjudicator’s decision. That point (to which Coulson LJ refers in paragraphs 100-101) would seem one answer to Lewison LJ’s comment that “it is not easy to see what utility” enforcement has (paragraph 145).
Third, the key to the reasoning in John Doyle is that to enforce an adjudication decision which remains provisional in effect is to disapply the insolvency scheme. This cannot be done because it is “not a matter of discretion”: paragraphs 98 and 145. However, as above one solution proposed in Meadowside is to ring-fence the enforcement sum and to impose a time limit on the defendant to commence its own proceedings. The ring-fenced sum is not irretrievable. If the defendant commences its own substantive proceedings, the Court in those proceedings can determine the net balance and order a one-off payment. Where that happens, it is perhaps open to debate whether the insolvency scheme has been disapplied. Equally, if the defendant does not commence its own proceedings, the award becomes final in effect and the ring-fenced money is released to be distributed to creditors. In that scenario, since the award reflects the final net balance, again it might be debated whether the insolvency scheme has been disapplied.
Whatever scope there may be for further debate, the analysis in John Doyle provides a more attractive and clearer result for potential defendants to adjudications brought by insolvent companies. For a variety of reasons, some companies in that position would prefer to ignore the adjudication proceedings altogether if there is no real threat of enforcement. The difficulty posed by Meadowside, on one reading of the judgment, for a company in that position is that the risk of enforcement is usually an unknown until the enforcement stage. That is because it is unclear whether the insolvent company will be able to put together a sufficient package of security measures to convince the Court that enforcement is appropriate. The result being that the only safe course is to spend the time and money required to defend the adjudication proceedings, potentially only to find that the insolvent company had no real hope of ever being able to enforce the award. Therefore, if John Doyle is the final word on this subject, a defendant to enforcement proceedings brought by an insolvent company may feel a little more secure in any decision simply to ignore those proceedings. Nevertheless, paragraphs 100-101 of John Doyle make clear that the Court is eager to try to give some procedural effect to any prior adjudication decision in the course of subsequent litigation. This means that even on the analysis in John Doyle there is still a risk involved in simply ignoring an insolvent company’s adjudication claim. Moreover, since (as stated in paragraphs 2, 87, 92, 135, and 139 of John Doyle) all the opinions in Meadowside, Bresco (SC), and John Doyle have been obiter, there may well be further litigation on this topic.
Arthur Graham-Dixon has a broad practice in all areas of Chambers’ work and regularly acts as sole counsel in the Technology and Construction Court. In Meadowside Building Developments Ltd (in liquidation) v 12-18 Hill Street Management Company Ltd [2019] EWHC 2651 (TCC) Arthur successfully represented the Defendant employer (‘HSMC’) in resisting the Claimant’s (‘Meadowside’) application for summary judgment to enforce an adjudicator’s decision.
