Insolvencies in the construction industry are on the increase but due to historic difficulties in insolvent companies enforcing adjudication decisions, there has previously been some doubt as to whether or not an Adjudicator has jurisdiction to make a decision if the referring party was insolvent.
This was considered by the Court of Appeal in Bresco v Lonsdale  EWCA Civ 27 where it was found that an Adjudicator did have jurisdiction to hear a dispute involving an insolvent company. However, the Court considered that any decision made in favour of a company in insolvent liquidation would not be enforced by a court. Therefore, save for exceptional circumstances, commencing adjudications was deemed to be an “exercise in futility”.
In Meadowside v Hill Street  EWHC 2651 (TCC) the court further clarified the options of liquidators seeking payments from solvent companies through adjudication and outlined the circumstances in which it would be prepared to allow the enforcement of an adjudication decision.
Firstly, the extent to which the adjudication resolves all claims and cross claims so that the adjudication determines the final net position between the parties under the relevant contract, will influence the Court in deciding whether the adjudication award can be enforced..
Secondly, appropriate security must be provided in respect of both the adjudication award and any adverse costs order in the enforcement proceedings and any subsequent litigation. In respect of the adjudication award, this can be done by the liquidator ring-fencing any sums paid to the company in liquidation to enable the Respondent to commence proceedings to overturn the Adjudicator’s decision. Alternatively, by providing a bank guarantee or cash deposit. In respect of adverse costs, an ATE policy can be put in place to cover any adverse costs should an application to enforce the adjudicator’s decision be unsuccessful or should the Adjudicator’s decision be successfully appealed.
In Meadowside itself, the court found that the funding agreement in place, whilst not disclosed, had a reasonable prospect of breaching the Damages-based Agreement Regulations 2013. This was a factor in the Court refusing to enforce the decision by way of summary judgment.
However, whilst the decision in Bresco v Lonsdale is being appealed to the Supreme Court, in the meantime the Meadowside decision provides useful guidance. It will be seen as a welcome development for liquidators, as the adjudication process is generally a more efficient, quicker and cheaper alternative to litigation.
Should you wish to discuss obtaining ATE policies to enable you or your clients to use adjudication as a tool for recovering sums due to an insolvent company, please get in touch.