The right of companies in liquidation to adjudicate
Last year saw significant developments regarding the right and wisdom of insolvent companies to adjudicate following judgments handed down by Fraser J and HHJ Waksman QC sitting in the TCC. We also consider the future for smash and grab adjudications, following recent decisions in this area.
Parties contemplating adjudication where insolvency is a relevant factor should carefully consider the nature of the proposed adjudication, and the nature of the insolvency procedure.
The different combinations of these two processes can have a significant bearing on the outcome of a case.
Last year, a handful of key decisions vividly illustrated this fact, and it is likely that the outcome of cases this year will provide further clarity on the issue.
2019 started with the cases of Bresco v Lonsdale and Cannon v Primus being heard together by the Court of Appeal.
In these cases, the court held that a company in liquidation is still capable of resolving a dispute by adjudication, albeit in very limited circumstances, and that an adjudication ought not to continue in circumstances in which the adjudication is an exercise in futility.
Mid-way through the year, there was another case in which the recipient of an adjudicator's award for an interim application for payment sought to enforce the award in the Technology and Construction Court (TCC), shortly before entering a Company Voluntary Arrangement (CVA).
Stuart-Smith J dismissed the application for summary judgment to enforce the award in Indigo Projects London v Razin & another, on the basis that the adjudicator had not decided both the claim and cross-claim, meaning a full accounting exercise had not been completed.
2019 ended with another TCC decision handed down in October, by Constable J in Meadowside Building Developments v Hill Street, in which it was expressed that, in certain circumstances, an insolvent party will be able to adjudicate.
This includes circumstances in which there are not any outstanding and unresolved cross-claims and security is provided in respect of both the adjudication award and adverse costs of enforcement proceedings.
Nevertheless, Meadowside's application for summary judgment was rejected because of a potential funding arrangement being found to be champertous and an abuse of process.
In 2020, more decisions are expected over the enforcement of adjudication awards to provide further elucidate the distinction between the rights of companies in CVAs and Creditors Voluntary Liquidation to adjudicate, the effect of unresolved cross-claims and accounting exercises to be undertaken and the criteria for an insolvent company to establish its ability to adjudicate.
It also remains to be seen what impact schemes such as the CIC low value adjudication procedure will have on the number of enforcement cases reaching the TCC.
Smash and grab adjudications
With S&T (UK) Limited v Grove Developments settling before reaching the Supreme Court, we will have to wait for Supreme Court guidance on the nature and extent of smash and grab adjudications.
In the meantime, it remains that payment of the "notified sum" is required before a "true value" adjudication can be commenced, and we expect smash and grab adjudications to continue to be deployed this year.
This looks especially likely following the TCC's decision in Davenport v Greer, in which summary judgment was awarded in respect of the enforcement of an adjudicator's award in circumstances in which payment had not been made in respect of that award.
As Stuart-Smith J summarised:
"It should now be taken as established that an employer who is subject to an immediate obligation to discharge the order of an adjudicator based upon the failure of the employer to serve either a Payment Notice or a Pay Less Notice must discharge that immediate obligation before he will be entitled to rely upon a subsequent decision in a true value adjudication".
The different combinations of these two processes can have a significant bearing on the outcome of a case.
Last year, a handful of key decisions vividly illustrated this fact, and it is likely that the outcome of cases this year will provide further clarity on the issue.
2019 started with the cases of Bresco v Lonsdale and Cannon v Primus being heard together by the Court of Appeal.
In these cases, the court held that a company in liquidation is still capable of resolving a dispute by adjudication, albeit in very limited circumstances, and that an adjudication ought not to continue in circumstances in which the adjudication is an exercise in futility.
Mid-way through the year, there was another case in which the recipient of an adjudicator's award for an interim application for payment sought to enforce the award in the Technology and Construction Court (TCC), shortly before entering a Company Voluntary Arrangement (CVA).
Stuart-Smith J dismissed the application for summary judgment to enforce the award in Indigo Projects London v Razin & another, on the basis that the adjudicator had not decided both the claim and cross-claim, meaning a full accounting exercise had not been completed.
2019 ended with another TCC decision handed down in October, by Constable J in Meadowside Building Developments v Hill Street, in which it was expressed that, in certain circumstances, an insolvent party will be able to adjudicate.
This includes circumstances in which there are not any outstanding and unresolved cross-claims and security is provided in respect of both the adjudication award and adverse costs of enforcement proceedings.
Nevertheless, Meadowside's application for summary judgment was rejected because of a potential funding arrangement being found to be champertous and an abuse of process.
In 2020, more decisions are expected over the enforcement of adjudication awards to provide further elucidate the distinction between the rights of companies in CVAs and Creditors Voluntary Liquidation to adjudicate, the effect of unresolved cross-claims and accounting exercises to be undertaken and the criteria for an insolvent company to establish its ability to adjudicate.
It also remains to be seen what impact schemes such as the CIC low value adjudication procedure will have on the number of enforcement cases reaching the TCC.
Smash and grab adjudications
With S&T (UK) Limited v Grove Developments settling before reaching the Supreme Court, we will have to wait for Supreme Court guidance on the nature and extent of smash and grab adjudications.
In the meantime, it remains that payment of the "notified sum" is required before a "true value" adjudication can be commenced, and we expect smash and grab adjudications to continue to be deployed this year.
This looks especially likely following the TCC's decision in Davenport v Greer, in which summary judgment was awarded in respect of the enforcement of an adjudicator's award in circumstances in which payment had not been made in respect of that award.
As Stuart-Smith J summarised:
"It should now be taken as established that an employer who is subject to an immediate obligation to discharge the order of an adjudicator based upon the failure of the employer to serve either a Payment Notice or a Pay Less Notice must discharge that immediate obligation before he will be entitled to rely upon a subsequent decision in a true value adjudication".