2019 saw a number of high-profile contractor insolvencies and two landmark cases exploring the relationship between the adjudication and insolvency regimes (Bresco[1] and Meadowside[2] respectively). For an industry in which cashflow is king, the outbreak of COVID-19 threatens to have especially sizeable implications for construction contractors and could precipitate further insolvencies. It is therefore more important than ever to understand whether an insolvent company can take part in an adjudication. With that in mind, we consider the case of Balfour Beatty v Astec Projects, the first case to consider the principles laid down last year in Meadowside. We of course also await judgment of the Supreme Court in Bresco, commentary on which will follow in due course.
Recap
Bresco Electrical Services Ltd (In Liquidation) v Michael J Lonsdale (Electrical)
In 2014, Lonsdale subcontracted some electrical works to Bresco and some three years later, after Bresco had entered liquidation, the liquidator started an adjudication against Lonsdale claiming some £220,000. Lonsdale was successful at first instance in obtaining injunctive relief to prevent the adjudication going ahead, but Bresco’s appeal was granted by the Court of Appeal where it was ruled that, if a court could hear a claim from a company in liquidation, then an adjudicator must be able to as well. The Court did note, however, that although a company in liquidation could, in theory, bring an adjudication, to do so would be an “exercise in futility” and an adjudicator’s decision in such an event would only be enforced in “exceptional circumstances”. We await the judgment of the Supreme Court to see whether the Court of Appeal’s decision is upheld.
Meadowside Building Developments Ltd (In Liquidation) v 12-18 Hill Street Management Co Ltd
Here, Adam Constable QC considered the possibility of exception to the rule in Bresco and set out four factors which, if satisfied, would mean a case “is likely to be an exception”:
- The adjudication deals with a final net position between the parties under the relevant contract. This effectively excludes ‘smash and grab’ adjudications;
- Satisfactory security is provided both in respect of any sum awarded in the adjudication and in respect of any adverse costs order made against the insolvent company;
- It will be a question of fact what “satisfactory security” is, but it may involve a liquidator undertaking to ring-fence the adjudication sum so that it cannot be distributed, a third party providing a guarantee or bond or after the event (ATE) insurance; and
- Any funding agreement or security put in place is not an abuse of process.
Adam Constable QC ruled that the claimant in Meadowside did not hold satisfactory security as it failed to disclose the exact nature and structure of its funding agreement.
The case in question
So, back to Balfour Beatty v Astec and the first consideration of the Meadowside principles. Here, Astec brought three separate adjudications in relation to work carried out at Blackfriars Station. Balfour Beatty argued that the adjudications should not proceed on the basis that “they fall outside what is now said to be the very limited number of cases where the court will contemplate allowing adjudications at all where the company seeking the money is in liquidation.” The first question for Waksman J, therefore, was whether the adjudications were permissible.
Waksman J first ruled that Astec’s choice to bring three separate adjudications, as opposed to just one adjudication covering all three disputes between the parties, was not a barrier to their occurrence. The results of the adjudications could be netted off against each other to give one overall account of the parties’ dealings.
He then considered whether the Meadowside principles could be made out and whether any directions were necessary for the adjudications to proceed. The following steps were deemed necessary to satisfy the Meadowside principles and take account of the three adjudications:
- The same adjudicator was to be appointed for all three adjudications. Alternatively, the parties could agree to amalgamate the same;
- Following the adjudicator’s decision, Balfour Beatty was to be given six months to proceed to litigation to seek a different result. Astec would not be able to enforce said decision until the six months passed or the litigation concluded;
- If the decision were in Balfour Beatty’s favour, it would be able to enforce the decision immediately (assuming no challenge from Astec by way of litigation); and
- Astec was to provide security for the adjudication fees and other expenses to Balfour Beatty of £750,000.
So long as the preceding conditions were satisfied, Waksman J ruled that he would not grant the injunctive relief sought by Balfour Beatty. As such, the adjudications could go ahead despite Astec’s insolvency.
Commentary
Balfour Beatty v Astec is the first case to consider whether an insolvent party could bring an adjudication since the goalposts were widened in Meadowside last year. The case has no doubt further developed this area of the law, although precedents set are subject to change once the Supreme Court lays down its judgment in Bresco. For now, the legal position seems clear: insolvent parties are entitled to adjudicate in set circumstances (albeit the parameters of those circumstances are extremely narrow). The Supreme Court’s verdict will be consequential and well-timed; we look forward to its publication.
[1] Bresco Electrical Services Ltd (In Liquidation) v Michael J Lonsdale (Electrical) Ltd [2019] EWCA Civ 27
[2] Meadowside Building Developments Ltd (In Liquidation) v 12-18 Hill Street Management Co Ltd [2019] EWHC 2651 (TCC)
This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any of the issues raised in this [article][blog], please contact us today by telephone or email enquiries@sharpepritchard.co.uk.
