Insolvency and adjudication revisited

The recent decision of Adam Constable QC in the case of Meadowside Building Developments Ltd (in liquidation) -v- 12-18 Hill Street Management Company Ltd, considered an application for summary judgment to enforce a decision by an adjudicator in favour of an insolvent company.

The court considered whether there is an exception to the rule under Bresco (an adjudication decision would not be enforced as it does not finalise the ‘accounting’ between the parties) and whether there are circumstances in which enforcement of an adjudicator’s decision in favour of an insolvent company should be permitted. He held that an exception to the general rule in Bresco will be met where:

1. The adjudication determines the final net position between the parties under the contract. The contract between the parties was a JCT Minor Works Building Contract, 2011 edition, which stipulated that final accounts must be produced in accordance with the Contract where the contractor becomes insolvent. Therefore the adjudication before the court had the purpose of arriving at a net balance of the sums due between the parties, and thus, the court was satisfied that the adjudication overcome this first hurdle
    
2. Satisfactory security can be provided in respect of both:
   
   1. the adjudication award; and
   2. any adverse costs order against the party in liquidation in respect of:
      
      1. an unsuccessful application for enforcement of the adjudication decision
      2. any subsequent litigation
         (both to be determined by the court)

The court’s view was that the issue of what is ‘satisfactory security’ is a question of fact. A combination of such things as (i) the liquidator undertaking to ring-fence the sum enforced; (ii) a third party providing a guarantee or bond; (iii) an ATE insurance policy, may suffice provided the terms are acceptable to the court.

In the event the court decided on the facts of this case that the funding agreement was ‘champertous’ (an illegal bargain) and the adjudication decision was not enforced.

Conclusion

The judgment provides guidance and encouragement for liquidators (and their claims representatives) to pursue adjudication successfully, on behalf of insolvent companies.