This Court of Appeal case follows the much reported Bresco, Meadowside and the first instance John Doyle cases. This case clarifies security requirements for insolvent claimants and puts a lid on any insolvent company’s belief in entitlement to enforcement of an adjudication award by way of summary judgement.
John Doyle Construction Limited (In Liquidation) (“JDC”), assigned its final account claim to Henderson Jones (“HJ”). JDC was granted an adjudication award (the “Award”) against Erith Contractors Limited (“Erith”) and JDC sought to enforce the Award by way of summary judgement. The first instance judgment concluded that the Award could not be enforced because JDC had not provided adequate security for Erith’s costs should Erith makes a successful claim for repayment based on its counterclaim (the “Decision”).
JDC appealed the Decision on the following three grounds:
that the Judge should have found that the liquidators offered for Erith to pay a sum into an escrow account or into court and that this was adequate security;
that the deed of indemnity (in addition to the ATE insurance policy) was adequate security; and
that the judge erred in holding that Insolvency Rule 6.42 (“all fees, costs, charges and other expenses incurred in the course of the winding up are to be treated as expenses of the winding up”) did not provide adequate security for Erith.
The Court of Appeal Judgement
Lord Coulson considered the first instance judgment and dismissed all three grounds of JDC’s appeal as follows:
In respect of Ground 1, Lord Coulson found that that there was no “clear and unequivocal” offer from the liquidators for Erith to pay monies into an escrow account or the court. He also found that the liquidators could not have done so because this would have contradicted the agreement between JDC’s liquidators and HJ, that any monies paid by Erith will be paid to HJ.
In respect of Ground 2, it was found that the deed of indemnity was not adequate because there was no evidence (such as a letter) that a specific insurer was prepared to provide Erith with a specific (vs draft/generic) deed of indemnity, as security for an order for Erith’s costs.
In respect of Ground 3, it was noted that Rule 6.42 gives preference to legal expenses incurred by the liquidators in the course of winding up. The court found that whilst Rule 6.42 would of course cover the expenses of the liquidators if they brought a further claim; it would not cover the costs if Erith brought a claim and obtained a costs order against JDC.
Can an insolvent claimant be awarded summary judgment out of an adjudicator’s’ decision, without regard to the paying party’s set-off and counterclaim.
Lord Coulson continued by addressing a more fundamental question of whether or not “the insolvent company is entitled to summary judgment to enforce the decision of an adjudicator, regardless of the absence of a final determination of the other side's set-off and cross-claim.”
On this point, the court determined that where the insolvency set-off claim between the insolvent company and the other party has not been finally determined either by agreeing that an adjudicator can do so or otherwise, the insolvent claimant is not entitled to summary judgement.
The Decision demonstrates that for a court to be willing to grant summary judgment to an insolvent company in order to enforce an adjudication award, there must be thought-through, clear and unequivocal security for costs arrangements in place.
However and more importantly, it is now clear that an insolvent company is not entitled to summary judgment to enforce an adjudication award, unless the insolvency set off claim has been finally determined, by agreement or otherwise. It remains to be seen whether this latest edition to the cases concerning insolvent parties, will open or close the flood gates to more claims on behalf of insolvent parties.