Myerson Solicitors successfully advise on first adjudication enforcement decision for a company in administration based on Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd
Law firm Myerson successfully represented Styles & Wood Limited in enforcing an adjudicator’s decision against GE CIF Trustees Limited in what may be the first summary judgment application to come before the Courts to enforce an adjudicator’s decision in favour of a party in administration.
The Supreme Court recently ruled in Bresco Electrical Services Ltd (in liquidation) v Michael J Lonsdale (Electrical) Ltd [2020] UKSC 25 that the insolvency set-off rules do not trump a party to a construction contract’s right to adjudicate.
Following hot on the heels of the Supreme Court decision in Bresco, Styles & Wood Limited (in administration) have successfully enforced an adjudication decision using the principles laid down in Bresco. An adjudication was commenced by Styles & Wood in relation to the final account for a substantial project at St Ann’s Square in Manchester. Partway through the adjudication Styles & Wood entered administration but they, nevertheless, continued the adjudication process and obtained a decision awarding it payment of a sizeable sum. Unlike in other recent cases, the responding party GE CIF Trustees Limited did not seek an injunction to restrain the adjudication. Subsequently, however, GECIF refused to comply with the Adjudicator’s decision on the ground of futility and sought a stay of execution. Styles & Wood brought enforcement proceedings before the Courts which were heard in a summary judgment hearing on 4 September 2020. Styles & Wood sought to satisfy those conditions of enforcement as laid down by Adam Constable QC in Meadowside Building Developments Ltd (in liquidation) v 12 -18 Hill Street Management Co Ltd [2019] EWHC 2651 (TCC) by providing an undertaking by Styles & Wood’s Joint Administrators to ringfence the awarded sums for 3 months pending the commencement of any final determination proceedings and by taking out an ATE insurance policy to cover any adverse costs award that may arise against it in subsequent proceedings.
The Court accepted the type and level of security offered and gave judgment in favour of Styles & Wood.
Whilst the principles for enforcement had been set out previously by the Courts; this is the first case, that we are aware of, where an insolvent party has been successful in enforcing an adjudicator’s award in the Courts.
Myerson successfully represented Styles & Wood both in the adjudication and the enforcement proceedings in this case. The team was led by Neil Armstrong and Jack Duncanson with Riaz Hussain QC of Atkin Chambers as Counsel.
The Background
Styles & Wood Limited (S&W) were a successful Manchester-based fit-out firm who entered into a building contract with GE CIF Trustees Limited (GECIF) (Contract) for office to residential conversion works at St Ann’s Square Manchester (Property). The Contract incorporated the JCT Intermediate Building Contract with contractor’s design 2011 subject to a schedule of amendments. The Contract included an express adjudication clause.
Following practical completion, a dispute arose between the parties in respect of the final account under the Contract which was referred to adjudication in February of this year. Partway through the adjudication, S&W went into administration.
In April 2020, the Adjudicator issued a decision which awarded a substantial sum to S&W.
GECIF, subsequently, refused to comply with the Adjudicator’s decision on the ground of futility and sought a stay of execution. GECIF’s futility argument rested on the since overturned, Judgment of LJ Coulson in the Court of Appeal decision in Bresco Electrical Services Limited (in liquidation) v Michael J Lonsdale (Electrical) Limited [2019] EWCA Civ 27 which held [at para 63] that:
In the circumstances of this case, an adjudicator's decision in favour of Bresco, a company in insolvent liquidation facing a separate cross-claim, will not be capable of being enforced. That would make the adjudication an exercise in futility.
S&W brought enforcement proceedings before the Courts which were heard in a summary judgment hearing on 4 September 2020 before HHJ Parfitt (the Hearing). Mr Riaz Hussain QC represented the Joint Administrators of S&W (instructed by Myerson Solicitors LLP), and Mr Thomas Crangle represented GECIF (instructed by Dentons UK and Middle East LLP).
Security for the decision sum was offered by way of an undertaking from S&W’s Joint Administrators to ringfence the sums awarded for a period and an ATE policy providing cover for an adverse costs award in any final determination proceedings.
The Law
The Hearing proceeded in light of the recent Supreme Court Judgment in Bresco Electrical Services Ltd (in liquidation) v Michael J Lonsdale (Electrical) Ltd [2020] UKSC 25 issued after service of proceedings in this case.
In Bresco the Supreme Court held that the adjudication of disputes under construction contracts cannot be injuncted or restrained on the ground of a party’s insolvency and that any issues as to insolvency will be addressed at the enforcement stage. See in particular Paragraphs 59 and 67 of Lord Briggs’ judgment:
59. The starting point, once it is appreciated that there is jurisdiction under section 108 in such circumstances, is that the insolvent company has both a statutory and a contractual right to pursue adjudication as a means of achieving resolution of any dispute arising under a construction contract to which it is a party, even though that dispute relates to a claim which is affected by insolvency set-off. It follows that it would ordinarily be entirely inappropriate for the Court to interfere with the exercise of that statutory and contractual right. Injunctive relief may restrain a threatened breach of contract but not, save very exceptionally, an attempt to enforce a contractual right, still less a statutory right.
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 ringfence 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]
When it came to enforcement of an adjudicator’s decision the Supreme Court at [67] recognised the approach of Adam Constable QC in Meadowside Building Developments Ltd (in liquidation) v 12 -18 Hill Street Management Co Ltd. The requirements for satisfactory security for enforcement in favour of a party in administration are set out in Meadowside at Paragraph 87(2) of Adam Constable QC’s Judgment:
[87] For these reasons, in my judgment, a case is likely to be an exception to the ordinary position in circumstances where:
(2) Satisfactory security is provided both:
(a) In respect of any sum awarded in the adjudication and successfully enforced, so that it is repayable should the responding party successfully overturn the decision in litigation or arbitration brought within a reasonable time of the date of enforcement;
(b) In respect of any adverse order for costs made against (or agreed by) the company in liquidation in favour of the responding party in respect of:
(i) Any unsuccessful application to enforce the adjudication decision;
(ii) The subsequent litigation/arbitration, in which the responding party is seeking to overturn the adjudication decision;
The extent to which any such costs order is ordered to be met from the security would be a matter for the Court, insofar as it was not agreed.
(3) What is satisfactory as security in form, duration and amount is a question on the facts in the ordinary way and may be provided incrementally (as it would be, for example, in any security for costs application). A combination of the following solutions might be appropriate:
(a) the liquidator undertaking to the Court to ringfence the sum enforced so that it is not available for distribution for the relevant duration;
(b) a third party providing a guarantee or a bond;
(c) ATE insurance.
The reference in Meadowside to providing security for the costs of the enforcement hearing (as opposed to the costs of final determinative proceedings) no longer applies. The Supreme Court in Bresco held that a statutory or contractual adjudication could not be injuncted or restrained. It follows that each party has a right to seek to enforce the Adjudicator’s decision and does not have to provide security for the costs of enforcement.
The Meadowside Security Provided for the Decision Sum
GECIF attempted to raise a number of issues including complaints about S&W’s financial position, the assertion that final determination proceedings would shortly be commenced and various complaints about the substance of the Adjudicator’s decision.
GECIF’s key objection was that the level of cover for GECIF’s costs of final proceedings secured by the ATE insurance policy was inadequate. GECIF averred that the likely costs that GECIF could be awarded in arbitration would be five times that of the level of ATE insurance that S&W put in place.
In response to the aforementioned objections S&W made various submissions particularly on the level of costs anticipated by GECIF in final proceedings and the level of ATE cover required.
HHJ Parfitt agreed with S&W’s submissions. He referred to GECIF’s broad-brush approach in respect of the level of costs to be wholly unpersuasive and that their cost breakdown seemed neither serious nor substantive.
GECIF also referred to concerns about the wording and substance of S&W’s ATE insurance policy and proposed undertaking for the ringfencing arguing that these rendered the security as inadequate. During the proceedings S&W addressed each of these concerns with amendments being made to the ATE insurance policy and the provision of supplementary undertakings on the part of the administrators of S&W.
GECIF also unsuccessfully argued that there were defects in the works that had not been determined by the Adjudicator’s decision which therefore did not comprise a net balance of the dealings between the parties in accordance with clause 14.25 of the Insolvency Rules.
Decision
At the Hearing, the Judge found in favour of S&W and ordered that the Claimant’s application for Summary Judgment and enforcement of the Adjudicator’s Decision be granted on the condition that the ATE insurance policy at the current level offered by S&W remains in force and the Joint Administrators provide the necessary undertakings. Making this one of the first cases in which an insolvent party has successfully secured an adjudicator’s award in the Courts since the Supreme Court decision in Bresco.
The full judgement can be viewed here.
Myerson’s specialist construction lawyers specialise in Construction Litigation. For more information on the range of legal services Myerson LLP can provide, please call Myerson’s Construction Team on +44(0)161 941 4000 or email lawyers@myerson.co.uk
Notes
Bresco Electrical Services Ltd (In Liquidation) v Michael J Lonsdale (Electrical) Ltd.
Meadowside Building Developments Ltd (In Liquidation) v 12 - 18 Hill Street Management Co Ltd