COMPANY IN LIQUIDATION BRINGING CLAIMS TO SOP ADJUDICATION
In Meadowside Building Developments Ltd v 12-18 Hill Street Management Company Ltd [2019] EWHC 2651 (TCC) (“Meadowside”), the Technology and Construction Court recognised that it is possible for adjudication decisions obtained by companies in liquidation to be enforced in exceptional circumstances.
New developments on the effect of liquidation on adjudication: English law has developed since our previous article on Michael J Lonsdale (Electrical) Ltd v Bresco Electrical Services Ltd [2018] EWHC 2043 (TCC). That case had gone on appeal to the EWCA in Bresco Electrical Services Ltd (In Liquidation) v Michael J Lonsdale (Electrical) Ltd; Cannon Corporate Ltd v Primus Build Ltd [2019] EWCA Civ 27 (“Bresco”), which upheld the TCC decision on different grounds. Meadowside considered the Bresco decision extensively and developed an exception to the rule.
Insolvency does not go to adjudicator’s jurisdiction: Meadowside reiterated that in Bresco, the EWCA held that the insolvency of the claimant does not deprive the adjudicator of jurisdiction to determine the claim ([39] Meadowside). The TCC at first instance held otherwise in Bresco.
EWCA will in most cases restrain the adjudication proceedings or stay enforcement: However, Bresco held that as a matter of utility, the fundamental incompatibility of the adjudication process and the insolvency regime would mean that in ordinary cases the company in liquidation could not successfully enforce the adjudication decision ([81] Meadowside). This was because of the following reasons, summarised in Meadowside: The process – Majority of adjudication claims were “smash and grab” types which were based on technical failures on the part of the respondent, which were inconsistent with the detailed accounting and net balance assessment under the insolvency regime ([45] Meadowside). The result – The respondent with a cross-claim would be deprived of the benefit of having the claimant’s claim as security for the cross-claim, as the respondent would be left to prove the cross-claim in liquidation and receive only a dividend ([52] Meadowside). Wider considerations – It would be a waste of the liquidator’s limited assets to make a claim which could only be enforced in exceptional circumstances, and the adjudication decision would not be any kind of estimate or assessment of the parties’ mutual debts ([58] Meadowside).
Enforcement in exceptional cases: Having considered Bresco carefully, Mr Adam Constable QC (sitting as a Deputy High Court Judge) then reasoned that adjudication decisions obtained by a company in liquidation could be enforced in an exceptional case with safeguards in place to put the responding party in a similar position to if the company was solvent. The exceptional case was summarised at [87] Meadowside: “(1) The adjudication brought or to be brought determines the final net position between the parties under the relevant Contract. An adjudication, by definition, will not be able to determine the net position between parties with dealings on more than one contract. The extent to which the adjudication is not capable of dealing with the entirety of the mutual dealings between the parties (and as such will not mirror the Rule 14.25 process between the parties) is to be taken account of in all the circumstances when looking at the utility of the adjudication and the discretion either to injunct, or, following adjudication, to enforce; (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) [After the event] insurance. (4) … any agreement to provide funding or security which permits the company in liquidation to avoid the ordinary consequences of Bresco cannot amount to an abuse of process.” On the facts, summary judgment was not granted in Meadowside. The adjudication was funded by a third-party, but the claimant refused to disclose the terms of the funding agreement; as such, there was insufficient evidence before the Court to determine the issue of champerty and abuse of process, which resulted in the Court holding that it would be wrong to grant summary judgment in the circumstances.
Singapore position: The position in Singapore is still open. In our previous article, we had referred to the Second Reading of the Building and Construction Industry Security of Payment Bill on 16 November 2014, that “Payment disputes involving insolvency are not covered under the Bill. … in the area of insolvency, there is a higher justice that must be served. There is an established priority of payments that have to be made to different parties who have suffered as a result of a party going insolvent. So this priority should not be upset just because of the payment woes in the construction industry. So we have therefore left insolvent cases alone so as not to disrupt a process which is working well.” It is pertinent to note that the Minister of State’s answer was made in response to a question regarding the insolvency of main contractors and direct payments from owner/developers to the sub-contractors. In these situations, the claimant is claiming against an insolvent respondent. Reading “payment disputes involving insolvency” in this context, the Minister of State confirmed that the SOP Act does not change the law of insolvency, especially the priority of payments. The statement by the Minister of State may not have contemplated insolvent claimants or claimants in liquidation applying for adjudication in making those remarks. In these situations, the issue is the recovery of the company’s assets and not the priority of payments. Under insolvency laws, the liquidator has the power to bring legal proceedings on behalf of the company. These may well include adjudication proceedings – even if the adjudication regime has features which are incompatible with the insolvency regime. If so, it remains to be seen if the Singapore Courts would restrain adjudication proceedings brought by liquidators similar to the English approach. T
ags: Building and Construction Industry Security of Payment Act; Winding up; Insolvent claimant; Adjudication; Jurisdiction
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