JOHN DOYLE CONSTRUCTION LTD v ERITH CONTRACTORS LTD

JOHN DOYLE CONSTRUCTION LTD v ERITH CONTRACTORS LTD

The circumstances in which summary judgment will be available to a company in liquidation seeking to enforce an adjudicator's award in its favour in the light of the Supreme Court’s decision in Bresco v Michael J Lonsdale
 

Technology and Construction Court

Fraser J

14 September 2020

 

The circumstances in which summary judgment will be available to a company in liquidation seeking to enforce an adjudicator's award in its favour in the light of the Supreme Court’s decision in Bresco v Michael J Lonsdale

 

The first circumstance set out by Fraser J is where 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 the dispute referred was the valuation of the referring party's final account, summary judgment will potentially be available. 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. The type of adjudication envisaged where all the different elements of the overall financial dispute between the parties are referred to the adjudicator is not entirely usual. It is somewhat at the opposite end of the scale to more technical "knock out" type adjudications and what are sometimes called "smash and grab" adjudications.

 

The second circumstance is that 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. This conclusion can be derived from Lord Briggs’ statement in Bresco that "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." This circumstance does have a practical consequence for adjudicators, who may find themselves asked by responding parties to become embroiled in matters outside the construction contract and even potentially outside their expertise. Orthodoxy would suggest that they ought to resist becoming involved in this way. They are appointed to resolve the dispute under the construction contract. Absent specific agreement from the parties for the adjudicator also to consider and resolve matters outside the construction contract, they would have no jurisdiction to do so. Such matters would be a matter for the court on the summary judgment application.

 

The third circumstance is that there is no "real risk" that summary enforcement of the adjudicator's decision would deprive the paying party of security for its cross-claim.

 

THE FULL TEXT OF THE JUDGMENT OF FRASER J

 

Introduction

 

  1. This is a claim for enforcement of an adjudicator's decision by way of summary judgment under CPR Part 7, in proceedings issued by John Doyle Construction Ltd ("JDC"). JDC is a company which is in liquidation, and has been since 2013. The Defendant, Erith Contractors Ltd ("Erith") opposes summary judgment on a number of different grounds.

 

  1. Adjudication has always been seen as designed to provide the speedy, interim resolution of disputes under construction contracts, to preserve cash flow for the industry, and to permit the parties to proceed to a final resolution of that dispute. During that process, the parties observe the decision of the adjudicator unless or until it is overturned by a judgment, or the award of an arbitrator. Adjudication has developed since it was first introduced, and Lord Briggs recently stated the following:

 

"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.

 

  1. The London Olympics in 2012 seem a long time ago, when one looks back eight years to how the world was then. Certainly, one might have thought that any disputes under the construction contract between Erith and JDC for the landscape works at the Olympic Park for the London 2012 Olympic Games would have been finally resolved by 2020. Not so in this case. The claim brought by JDC against Erith in the adjudication was for sums JDC claimed to be due on its Final Account for hard landscaping works at the Olympic Park, performed before the 2012 Olympic Games. JDC entered administration on 21 June 2012. JDC then entered creditors voluntary liquidation on 13 June 2013. JDC commenced the adjudication, leading to the decision which is the subject matter of these proceedings, on 22 January 2018. The claim was for approximately £4 million, and the adjudicator awarded JDC the sum of £1.2 million approximately, including VAT and interest.

 

  1. As will be seen from the procedural history that follows, delay during the period from July 2018 to July 2020 can be explained by the developing law concerning the rights of companies in liquidation to adjudicate disputes at all. However, the period between June 2012 and commencement of the adjudication in January 2018 was neither caused, nor contributed to, by such matters. The period of five and a half years from mid-2012 to early 2018 in respect of the works at the Olympic Park was caused by quite different matters, as will be seen by the section of this judgment headed "The involvement of Henderson Jones" below. It is not even accepted by Erith that it is JDC bringing these proceedings, rather than the company called Henderson & Jones Ltd ("Henderson Jones") that has acquired rights to the dispute from the liquidator of JDC. Erith point to the fact that the bulk of the spoils of any judgment in JDC's favour will go to Henderson Jones, not to the liquidator, as one of the reasons why summary judgment should be refused. This will be addressed further below.

 

  1. The hearing of the contested summary judgment application by JDC was set down for Wednesday 17 June 2020 at 10.30am. Somewhat coincidentally, a few days before that, the Supreme Court announced that it would hand down its decision in Michael J Lonsdale (Electrical) Ltd v Bresco Electrical Services Ltd (in liquidation)[2020] UKSC 25 on the same date, and at the same time, as that hearing. Accordingly, the hearing of this claim for summary judgment was postponed until 2 July 2020 so that both the parties and the court could take account of, and follow, the Supreme Court's decision in that case. Although that decision will be considered in far greater detail below, the Supreme Court allowed the appeal by Bresco. Lord Briggs stated both that companies in liquidation had the right to adjudicate disputes, and also that the problems caused by liquidation identified by the Court of Appeal both in an earlier case, Bouygues (UK) Ltd v Dahl Jensen (UK) Ltd[2000] EWCA Civ 507, and Lonsdale v Bresco [2019] EWCA Civ 27 itself, could all be considered at the enforcement stage. Both the court at first instance and the Court of Appeal in Lonsdale v Bresco had found, albeit by different routes, that a party facing an adjudication brought by a company in liquidation was entitled to an injunction to prevent this, because the decision of the adjudicator would not be enforced by the courts. The granting of an injunction to prevent a company in liquidation from bringing adjudication proceedings was overturned by the Supreme Court in that case.

 

  1. Thus it is that, shortly after the Supreme Court judgment in Lonsdale v Bresco, the court is faced with distilling or applying the principles that govern a party in liquidation seeking to enforce an adjudicator's decision in its favour by way of summary judgment. Regardless of the answer to that issue, the streamlined and fast-track procedure in the Technology and Construction Court for enforcement of adjudicator's decisions was not designed to deal with the sort of issues that arise where decisions are (as this one is) years, not months, old; nor that are made in respect of construction operations and disputes that are themselves (as this one is) eight years old. This is a procedural observation, but such older background matters may not be suited in all cases to the very rapid judicial enforcement currently available in the TCC for all adjudication business, a procedure that has been refined over the last two decades to mirror the ethos of the Housing Grants, Construction and Regeneration Act 1996 that intended adjudication to be a speedy remedy. This is a subject to which I shall return at the end of this judgment.

 

  1. Both parties submitted a much larger number of witness statements than would ordinarily be expected on an application such as this. These were one witness statement from Mr Joyce, JDC's solicitors; three from Mr Shaw, Erith's solicitors; one from Mr Menzies, a director of Erith (who had, some years ago, been employed by JDC); three from Mr Henderson (whose involvement is explained further below); and two from Mr Hawes (partner at Deloittes LLP and Joint Liquidator of JDC). Some of the witness statements contained extensive argument. Notwithstanding the importance to both parties of the outcome of this summary judgment application, such a volume of evidence is not necessary. Submitting more numerous, and longer, witness statements than necessary is a temptation that parties generally seem unable to resist. I will only deal with such aspects of the evidence as are necessary in order to resolve this application.

 

  1. Finally, at the end of the oral hearing, I invited short further written submissions from both parties on one particular aspect of the Supreme Court decision in Lonsdale v Bresco, namely the reference by Lord Briggs at [64] to the dicta of Chadwick LJ in Bouygues v Dahl Jensento which I have already referred at [5] above.

 

The History

 

  1. BAM Nuttall Ltd ("BAM") was engaged by the Olympic Development Authority ("ODA") as a Management Contractor to perform certain construction works for the construction of the Olympic Park and other works necessary for London to hold the 2012 Olympic Games. BAM required a trade contractor to perform the necessary hard landscaping works for the northern part of the Olympic Park, called Olympic Park North. Erith was pre-qualified by BAM to tender for such works; JDC was not. The trade contract was to include all supervision and resources necessary to perform the works. The contract form, as for all contracts for the London Olympics, was to be the NEC3 Subcontract.

 

  1. Erith therefore tendered for the works, as it was entitled to do, but in agreement with JDC that the works would be performed – either substantially or wholly, depending upon the different parties' points of view – by JDC. Mr Menzies described this as a "joint tender". I doubt that it was described in those terms to BAM, although that does not matter. However the tender was described at the time, Erith entered into the subcontract with BAM and the works commenced, a great amount of those works being performed by JDC.

 

  1. The contract between Erith and JDC was on the NEC3 form, Priced Contract with Activity Schedule, including the ODA standard additional clauses and amendments, Option W2 and Secondary Options as listed ("the subcontract"). The precise terms of the contract are not relevant for these purposes, and it is common ground that clause W2 included an adjudication clause. The appointing body for adjudication was identified in the subcontract as the ICE. The contract was entered into in July 2010. The precise date does not seem to be available.

 

  1. It is common ground that JDC performed a substantial amount of work, and went into administration with Deloittes being appointed as administrators on 21 June 2012. Deloittes subsequently, in June 2013, were involved in the appointment of the liquidators, all of whom were or are partners of Deloittes. The two joint liquidators currently are Mr Hawes and Mr Cowlishaw. Mr Menzies of Erith explains that he had realised a few months before June 2012 that JDC had, as he puts it, "been struggling financially". He also asserts that Erith "had to step in and complete the works", although two points are relevant in that respect. Firstly, the London Olympics actually started on 27 July 2012, so there was not much time between the administration of JDC and commencement of the Olympic Games. Secondly, even Mr Menzies estimates that the costs expended by Erith in doing so were only about £75,000. This is a far lower sum than the one sought in the adjudication by JDC. The short period of time, and the relatively modest level of completion costs, suggests that only limited works were outstanding when JDC went into administration, but that is merely an impression.

 

  1. Thereafter, firstly as administrators and then as liquidators, Deloittes attempted to agree with Erith the amount of payment outstanding to JDC on the Final Account. This did not lead to any agreement, and at one stage BAM became involved, eventually disclosing the amount actually paid to Erith for the works. The liquidators made an application to the court under section 236 of the Insolvency Act to compel the production of information about the Final Account between BAM and Erith. The evidence before me says that this occurred in June 2014, based on correspondence about it. The liquidators cannot produce a copy of the order of the court, because after this period of time it cannot be found; however, it is admitted by Erith that this had to be done.

 

  1. The information obtained from BAM led the liquidators to conclude that there was a valid claim against Erith with a reasonable prospect of success. Mr Hawes says in his witness statement that it was "established that Erith was a debtor to JCD in the sum of c £1.2 million after discounts deducted". That evidence is somewhat at odds with the claim of over £4 million brought by JDC in the adjudication, but for present purposes that does not much matter.

 

  1. However, Mr Hawes said in his evidence that pursuing a Final Account adjudication against Erith would be expensive and so "balancing the risks of pursuing the matter directly and our duty to realise all assets for the benefit of creditors, the decision was made to contact third-parties and enquire as to the terms of any sale, assignment or any other solution in respect of the claim". The liquidators were, therefore, introduced to Henderson Jones, who Mr Hawes refers to in the following terms, were chosen due to their having a "reputation in the marketplace, their expertise in dealing with contentious insolvency claims and ability to pursue recoveries for the creditors of insolvency estates".

 

  1. There are two observations that are pertinent at this point. Firstly, the decision by Mr Hawes that pursing an adjudication would be expensive is, without further explanation, difficult to reconcile with the adjudication that was eventually commenced in 2018, ostensibly by JDC. Ordinarily one would expect that to be because Henderson Jones conducted the adjudication, but Henderson Jones are more than a little coy about what they have in fact been doing. They claim that they have not been acting as legal advisers in either the adjudication or the litigation. In the adjudication, JDC was represented by Gowling WLG (UK) LLP. Secondly, the conclusion that an adjudication with Erith would be expensive is also difficult to reconcile with both the ethos of adjudication, and also all the authorities on adjudication decision enforcement over the last twenty years. The whole point of adjudication is that it is not expensive (or certainly, it is not supposed to be). It is supposed to be a quick and relatively cheap way of having a dispute resolved on a "temporarily final" basis, with the parties observing the decision until the dispute is resolved with finality (in litigation or arbitration) or the parties agree a broader, final outcome (which may include other disputes between them). It would doubtless involve the expenditure of some professional fees, and (potentially) the costs of the adjudicator, but with a decision potentially available within 28 days, such costs exposure is not likely to be great.

 

  1. However, regardless of that, the liquidators decided not to commence an adjudication. It is at this point that Henderson Jones enter the scene. The liquidators contacted Henderson Jones in August 2016. The involvement of Henderson Jones is heavily criticised by Erith in these proceedings. For reasons more fully explained below, the involvement of Henderson Jones and the agreements between it and the liquidators have to be considered in some detail.

 

The involvement of Henderson Jones

 

  1. Henderson Jones was founded by Mr Henderson and Mr Jones. Mr Henderson is a director of Henderson Jones, and also a qualified solicitor and practising solicitor-advocate. He founded Henderson Jones in 2016 which is when it started trading. This appears, on the dates, to be not a great period of time prior to his being contacted by the liquidators of JDC, so Mr Henderson and Mr Jones must have built up a good reputation very quickly in this particular field. In any event, Henderson Jones' activities are described by Mr Henderson in the following way. I will quote from his first witness statement as this is relevant to some of the points relied upon by Erith.

 

"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.

 

  1. In this case, that is what was done, or at least what was intended. The liquidators and Henderson Jones entered into a Deed of Assignment dated 8 December 2016. However, this assignment did not take effect as a legal assignment because the bespoke NEC3 terms and conditions that actually applied to the subcontract contained an express non-assignment clause. Erith refused to provide its consent to allow the assignment to take effect, in any event.

 

  1. There is something of a side issue between the parties about this prohibition on assignment. Mr Hawes, the joint liquidator, said he had no knowledge that there was such a term in the subcontract when this Deed was executed in 2016, and Mr Henderson says that he did not know of its existence until mid-2017. This must mean that neither of them read the subcontract when claims under it were assigned from the liquidators to Henderson Jones. Regardless of their state of knowledge of the subcontract terms at the time (and I find that this too, in any event, does not matter for present purposes), the agreement between JDC, the liquidators and Henderson Jones was recorded in a written instrument called the Deed of Assignment ("the Deed").

 

  1. The Deed has a number of detailed terms. I shall not reproduce them all. The most relevant ones are as follows. Recital C of the Deed states that:

 

"Following the assignment, H&J intends to take all reasonable steps to pursue the Assigned Claims and to achieve a recovery."

 

  1. Under clause 1.1, the following definitions were provided amongst others:

 

"Assigned Claims" means:

 

  1. 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.

 

  1. 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".

 

  1. Clause 3.1 provided:

 

"3.1 In the event that, for any reason, the Assigned Claims are not effectively legally assigned to H&J by this Deed, then:

 

  1. i) The Liquidators and the Company shall hold the Assigned Claims on trust for H&J absolutely (the Assigned Claim trust, or "AC Trust");

 

  1. 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."

 

  1. Clause 4 was headed "Price" and stated the following:

 

"4.1 In consideration of the Assignment, H&J agrees to pay to the Company:

 

  1. a) £6,500 within 5 Business Days of entering into this Deed; and

 

  1. 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).

 

  1. 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:

 

  1. i) Name;

 

  1. ii) Address (registered address if a company);

 

iii) Company number (if applicable); and

 

  1. iv) Bank account details (if available).

 

  1. 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.

 

  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.

 

  1. 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).

 

  1. 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).

 

  1. 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."

 

  1. Clause 8 states that:

 

"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:

 

  1. 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);

 

  1. 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. Therefore, in summary only, the following pertinent points arise as a result of the operation of the Deed:

 

  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.

 

  1. Henderson Jones paid JDC £6,500 for the assigned claims, with further payment to JDC dependent upon outcome;

 

  1. Henderson Jones had conduct and control of any proceedings pursued in relation to the assigned claims;

 

  1. Recovery of any claims were to be paid to Henderson Jones;

 

  1. 45% of net recovery in those subsequent proceedings (meaning recovery less costs) were to be paid out to JDC by Henderson Jones;

 

  1. Henderson Jones would therefore retain 55% of the net recovery.

 

  1. So far as conduct and control is concerned, "Consequent proceedings" is defined as proceedings pursued by Henderson Jones. Clauses such as clauses 3.1 and 8.1, and Recital C, make it clear that Henderson Jones are not only the entity that will be primarily involved, but were to be wholly in charge and neither the company nor the liquidators have any right even to be involved in making decisions in respect of these.

 

  1. Erith criticise the arrangement between JDC, the liquidators and Henderson Jones as being contrary to the Damages Based Agreements Regulations 2013 ("the 2013 Regulations"). Regulation 4 of the 2013 Regulations states the following:

 

"(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].

 

  1. The Deed of Assignment was followed by a Deed of Agreement, entered into between the same parties and dated 13 December 2019. This agreement was entered into in order to avoid some criticisms of this type of arrangement. These criticisms are indeed raised by Erith following the adjudication and in these proceedings, although that criticism could potentially have been predicted, due to the judgment handed down in October 2019 in another case called Meadowside Buildings Development Ltd (in liquidation) v 12-18 Hill Street Management Co Ltd[2019] EWHC 2651 (TCC), a decision of Mr Recorder Constable QC sitting in the High Court. I will return to that decision in greater detail below. It is unnecessary to recite the terms of the Deed of Agreement in any detail. They were plainly intended to avoid the arrangement between JDC and Henderson Jones being found to be similar to other arrangements in the Meadowsidecase. Those arrangements were held by Mr Constable QC to be contrary to the 2013 Regulations and also, in the alternative, champertous. Whether that was the intention behind the liquidators and Henderson Jones in entering to the Deed of Agreement or not in the instant case, the parties entered into the Deed of Agreement sometime after the Deed of Assignment, and after the decision in Meadowside.

 

  1. One clause of the Deed of Agreement, clause 2, amended the definition of Recovery in the Deed of Assignment. Another, clause 3 headed "Status of Relationship", sought to identify or specify what the relationship was between the company, the liquidators and Henderson Jones. There had been a similar provision in clause 7 of the Deed of Assignment. In particular, clauses 3.3 and 3.4 of the Deed of Agreement stated:

 

"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. To put what has occurred into context, the following dates and events are relevant. Limitation has not been argued by either party and therefore can be assumed not to arise in this case.

 

  1. The works took place, and JDC entered administration, in 2012.

 

  1. In 2013 JCD went into liquidation, and in December 2016 the liquidators entered into the Deed of Assignment with Henderson Jones.

 

  1. On 22 January 2018 the adjudication was commenced.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. On 9 April 2020 JDC issued the claim form seeking to enforce the decision in its favour from June 2018.

 

  1. 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. There are two different routes to potential enforcement that must be considered on this application. The first is whether a company in liquidation such as JDC is entitled to summary judgment at all. The second is if it is, whether a stay of execution should be granted. Those two routes may lead to the same outcome, but whether that is right or not, they consider some if not all of the same matters. For parties such as JDC and Erith, it is the overall outcome that is important.

 

  1. I will therefore consider the issue of summary judgment first. The question of a stay would only arise if JDC succeeded in obtaining summary judgment.

 

  1. The main point to consider therefore is identification of the principles that should be applied by the court when considering an application for summary judgment, given Lord Briggs' dicta in Bresco, and his approval of Chadwick LJ in Bouygues.

 

  1. The first matter that must be addressed in any case concerning an opposed enforcement of an adjudicator's decision is whether the adjudicator's decision is a valid one. By "valid" I mean that the decision is one that has been made within the adjudicator's jurisdiction, and without material breaches of natural justice. Both of those are essential ingredients for enforcement. No such issues arise in the instant case, and so I consider the issues below taking that into consideration. This will not necessarily be the situation in every such case, however. If challenges based on jurisdiction of the adjudicator, and material breaches of natural justice, arise, they would have to be dealt with first by the court at the enforcement stage. The following issues will only arise if any jurisdictional and natural justice challenges are resolved in the referring party's favour.

 

  1. I consider the following three issues arise on this application:

 

  1. In what circumstances will a company in liquidation be entitled to summary judgment on a valid adjudicator's decision in its favour?

 

  1. Are those circumstances present here, such that JDC is entitled to summary judgment?

 

  1. 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 Brescoand 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?

 

  1. The correct authorities to consider are the two decisions of the Court of Appeal that have already been touched upon (Bouyguesand Bresco), and the Supreme Court in Bresco. Because that latter case concerned whether a company in liquidation could adjudicate at all, rather than whether it could obtain summary judgment on a decision in its favour, then although guidance is provided on enforcement, it is not the central plank of the case before me, nor is it materially relied upon by either party. It is, however, an obviously important decision and must be considered in detail.

 

  1. The first decision in time is that of Chadwick LJ in Bouygues v Dahl Jensen. The decision dates from July 2000, but obviously holds good given the statement by Lord Briggs in Bresco in July 2020. The relevant passages from Chadwick LJ's judgment are as follows:

 

"[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."

 

  1. Even though the relevant Insolvency Rules 1986 are now a later version, namely the Insolvency (England and Wales) Rules 2016 ("the 2016 Rules"), the above ratio is still valid. The 2016 Rules were the applicable ones in the Brescocase, and no distinction was made by Lord Briggs at [64] when he confirmed that the analysis of Chadwick LJ was still good law and should be considered.

 

  1. The second decision is that of Coulson LJ in Bresco v Lonsdale[2019] EWCA Civ 27 itself. At [3] he described the issues in that case as follows:

 

"[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."

 

  1. That latter sentence makes it clear that the Court of Appeal in that case, when considering utility, took into account the same considerations and principles as would be taken into account when considering whether a company in liquidation can enforce an adjudicator's decision by way of summary judgment in its favour. At [37] and [38] Coulson LJ stated the following:

 

"[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."

 

  1. This analysis continued, with the following passages:

 

"[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)

 

  1. The Supreme Court found that there was no such incompatibility. Lord Briggs, having identified some similarities between adjudication and the exercise upon which a liquidator is engaged in taking an account, considered these passages in detail. In a section of the judgment entitled "Futility", Lord Briggs analysed at [54] to [67] the competing arguments and the conclusions of the Court of Appeal on utility. Lord Briggs stated the following:

 

"[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)

 

  1. The rationale of the passages above is that the difficulties identified by the Court of Appeal in Bouyguesconcerning potential repayment to the paying party, on final resolution of the dispute that had been adjudicated upon, remain real difficulties. The first point that has to be addressed is whether, by "cross-claim", Lord Briggs meant to include a claim by the defendant for final resolution of the dispute decided in the adjudication decision. I consider that he must, for three reasons. Firstly, there is nothing in the Supreme Court decision that seeks to elevate the status of adjudication decision to one of final resolution of the underlying dispute. Secondly, his reference to ring-fencing of enforcement proceeds, and potential undertakings by the liquidators, has relevance given the paying party's legal right to have the underlying dispute resolved with finality. That right is something established by statute, namely section 108(3) of the Housing Grants, Construction and Regeneration Act 1996 itself, which states that "the contract shall provide that the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement".

 

  1. Thirdly, this is plainly recognised by Lord Briggs because he referred at [13] (in the passage quoted at [2] above) to "de facto final resolution" of disputes. The reason that the resolution is de facto, and not de jure, is precisely because the adjudicator's decision is not a final one.

 

  1. The court is not concerned, on enforcement, with whether an adjudicator's decision is right or wrong. The precise facts of a case such as Bouyguesitself are illuminating in this respect. In that case the adjudicator had performed the arithmetic calculation consequent upon his findings incorrectly. By failing to deal with the 5% retention figure correctly in his calculation, the adjudicator had awarded the sum of £208,000 to be paid by Bouygues to Dahl Jensen. Had the calculation been done correctly, a sum of £141,000 would have been payable to Bouygues from Dahl Jensen. This error was clear on the face of the decision itself. This is clear from [9] to [11] of the judgment of Chadwick LJ.

 

  1. Although this is a clear error of fact, namely an ability to perform the necessary calculation, this error did not matter, nor did it render the decision non-enforceable for that reason. As Chadwick LJ stated at [3], quoting from Macob v Morrison[1999] EWHC Tech 254:

 

"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."

 

  1. JDC effectively submitted before me that the passages of Chadwick LJ identifying the problems of insolvency set-off were dealing with "latent cross claims", from the use by Chadwick LJ of that phrase in [35]. The relevant passage is as follows:

 

"[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. JDC went on to submit that:

 

"in a case where all that the defendant to the enforcement has is a "latent cross claim", that is to say all claims and cross-claims have been subsumed into the Adjudicator's Decision and all that Defendant has is a claim for repayment of the Adjudicator's Decision (which was discussed in Aspect Contracts (Asbestos) Limited v Higgins Construction Plc [2015] UKSC 38 as being a claim under an implied term or restitutionary claim), then the Supreme Court in Bresco would say there is no conceptual difficulty with that sum being enforced".

 

  1. This analysis ignores Lord Briggs further explanation at [67], and also ignores that the claim by Erith for final resolution of the dispute also amounts to a cross-claim. It seeks to equate the status of the adjudicator's decision – at an "intervening provisional stage", to use Chadwick LJ's expression - with final resolution of the dispute. It also wholly ignores the effect of section 108 itself.

 

  1. By referring to adjudicators' decisions as constituting de facto final resolution, Lord Briggs was referring to its legal status as being at the intervening provisional stage, that in many circumstances is treated by the parties as the final stage, including when such proceedings are advanced by a liquidator. The reason that the "issues about enforcement", to which Lord Briggs refers at [67], must be grappled with by the court at the enforcement stage, is precisely because it is de facto resolution, and not final determination of the dispute. This is because, otherwise, the company in liqu