The interrelation of insolvency and adjudication

14th February 2022

In John Doyle Construction v Erith Contractors, the Court of Appeal provides useful guidance to parties regarding the circumstances in which an adjudication decision might be enforceable by a company in liquidation.

The Court of Appeal highlighted that if there was to be any expectation of obtaining enforcement of an adjudication decision by a company in liquidation, adequate safeguards must be in place. An enforcing party in liquidation must be able to provide evidence that the other party would be able to receive the enforced award in full should it start its own cross claim and be successful.

The first significant decision after Michael J Lonsdale (Electrical) Ltd v Bresco Electrical Services Ltd (in liquidation), the judge in John Doyle set out principles for the courts to apply when considering whether an insolvent claimant is entitled to summary judgment.

The effect was that summary judgment would only be available to an insolvent party if certain elements were present, including the adjudicator taking into account all the different elements of the overall financial dispute between the parties in their decision. Additionally, adequate security must be offered in relation to any cross-claims the defendant may have.

The judge found that, although the enforcing party had satisfied the principles, it failed on the provision of security for several reasons which was inadequate to reassure the defendant that it would repay the sum awarded if the adjudicator’s decision was overturned.

The enforcing party appealed on the grounds that the judge did not consider the forms of security offered during the hearing. The Court of Appeal upheld the judgment confirming that any “undertakings or security being offered by a claimant company in liquidation need to be clear, evidenced and unequivocal”.

The case reaffirmed that insolvent companies may commence an adjudication for a dispute, but also serves as a reminder that the courts cannot exercise discretion to disapply the Insolvency Rules and therefore enforcement is only possible in limited circumstances.

Although the judgment provided commentary on the enforceability of an adjudication decision by a company in liquidation, there is useful guidance on the approach to enforcement the court is likely to take. There is still uncertainty – companies in liquidation seeking to enforce adjudication decisions must proceed with caution.