Meadowside Building Developments Ltd v 12-18 Hill Street Management Company Ltd
[2019] EWHC 2651 (TCC)
This was an application for summary enforcement of an adjudicator’s decision in the sum of £32k. The action was brought by Meadowside, a company in liquidation both at the time of the adjudication and now. HSMC did not take part in the adjudication, saying that the adjudicator lacked jurisdiction and the decision would be unenforceable. However, in the recent Bresco case (see Issue 224 [1]) the CA overturned a decision at first instance that an adjudicator did not have jurisdiction where the referring party was in insolvent liquidation. Having said that, the CA then upheld an injunction to prevent the adjudication from continuing because they considered that the adjudication was a futile exercise. In doing so, the CA did leave open the possibility that in exceptional circumstances a company in insolvent liquidation might be able to obtain summary enforcement of an adjudicator’s decision.
Here, there was no dispute that the adjudication was, in effect, dealing with the substance of full extent of the parties’ mutual dealings. It was far from being a “smash and grab” adjudication. It was therefore very similar to the process which the parties would have to undertake in the liquidation in any event. It was also different from the situation in Bresco.
Mr Adam Constable QC concluded that where the adjudicator is deciding the net mutual position between the parties, or at the very least a substantial part of it, the utility to the liquidator of pursuing the debt in the first instance in adjudication should not of itself be regarded as a reason to refuse summary judgment or grant a stay of execution. As a matter of public policy, a court should be slow to hinder the liquidator’s efforts to ascertain and recover debts in accordance with their statutory obligations.
Therefore where the adjudicator determines the final net position between the parties, exceptional circumstances might exist to allow the summary enforcement of that decision. That is provided that adequate security is given in respect of the decision amount and any potential adverse costs orders (including a potential enforcement hearing and any action to challenge on a final basis the issues in dispute). The security might include the liquidator undertaking to the court to ring fence the sum enforced so that it is not available for distribution for the relevant duration, a third party providing a bond or guarantee, or after the event (ATE) insurance.
Here, the liquidator had engaged a third party to fund the pursuit of the debt, who, as is typically the case, would be entitled to a percentage payment from any recovery. However, the problem for those trying to enforce the decision was that they had not disclosed the terms of the funding agreement. It appeared to the court that the third party would be paid more than 50% of the sum awarded which would have been a breach of the 2013 Damages-Based Agreement Regulations. This meant that the funding agreement was champertous (an illegal bargain) and the adjudication decision was not enforced.
See also commentary on the Supreme Court decision in Bresco in Issue 241 [2].
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