Factual and Procedural Background
This opinion concerns an application for summary judgment to enforce a decision by an Adjudicator dated 3 April 2018, awarding a sum of £32,629.63 plus VAT and adjudicator’s fees and expenses. The Applicant, Company A, was in liquidation at the time of adjudication and remains so. The Respondent, Company B, did not participate substantively in the adjudication, contending that the Adjudicator lacked jurisdiction and that the decision would be unenforceable. The dispute arises from a construction contract for repair works, with Company A appointed by Company B in 2014. Company A entered voluntary liquidation in 2015, and disputes arose concerning payments, variations, and defects.
Following liquidation, Company A’s liquidators appointed a third party, Company C, as agents to pursue the debt recovery, including via adjudication. Company B challenged the adjudicator’s jurisdiction and refused to participate, relying on precedents that adjudication is incompatible with insolvency proceedings. Company C proceeded with adjudication, and the Adjudicator found a net balance due to Company A. Company B sought to resist enforcement, citing insolvency and jurisdictional issues, while Company C offered guarantees and proposed security arrangements to mitigate concerns.
The procedural history includes correspondence between the parties and their representatives, submissions on jurisdiction and enforceability, and consideration of the Court of Appeal decision in Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd; Cannon Corporate Ltd v Primus Build Ltd [2019] EWCA Civ 27 (“Bresco”), which addressed the compatibility of adjudication with insolvency.
Legal Issues Presented
- Whether an adjudicator has jurisdiction to determine disputes involving a company in insolvent liquidation.
- Whether an adjudicator’s decision in favor of a company in liquidation is enforceable, particularly in light of cross-claims and insolvency rules.
- Whether exceptions to the general rule of non-enforcement of adjudication awards against insolvent companies exist, and if so, under what conditions.
- The impact of third-party funding agreements on the enforceability of adjudication decisions, including whether such agreements constitute champerty or abuse of process.
- The adequacy and effect of guarantees and security arrangements offered to address concerns arising from insolvency and cross-claims.
- Whether summary judgment should be granted to enforce the adjudicator’s decision or whether a stay or refusal is appropriate.
Arguments of the Parties
Appellant's Arguments (Company A and its Agents)
- The adjudicator had jurisdiction despite Company A being in liquidation, consistent with the Court of Appeal’s decision in Bresco.
- The adjudication dealt with the net balance of all dealings between the parties, making it an exception to the usual incompatibility between adjudication and insolvency.
- Security arrangements, including guarantees by Company C and proposals for ringfencing and insurance, mitigate the concerns about enforcement and cross-claim security.
- The funding agreement with Company C does not constitute champerty as Company C acts as agent for the liquidator, and even if it did, it should not prevent enforcement.
- Company B had opportunities to participate or seek injunctions but chose not to, and its non-participation does not preclude enforcement.
Respondent's Arguments (Company B)
- The Adjudicator lacked jurisdiction because Company A was in insolvent liquidation, making the adjudication unenforceable.
- The adjudication is an exercise in futility given insolvency and cross-claims, consistent with Bresco’s reasoning.
- The funding agreement with Company C is potentially champertous and may be unenforceable under the Damages Based Agreements Regulations 2013 (DBAR 2013).
- The guarantee offered by Company C is inadequate, and no insurance policy has been provided, thus security is insufficient.
- Company A’s failure to offer security prior to adjudication and Company B’s non-participation mean that enforcement would cause irreversible prejudice.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Bresco Electrical Services Ltd (In Liquidation) v Michael J Lonsdale (Electrical) Ltd; Cannon Corporate Ltd v Primus Build Ltd [2019] EWCA Civ 27 |
Adjudicator jurisdiction and enforceability of adjudication awards involving companies in insolvent liquidation; distinction between jurisdiction and utility; discretion to grant injunctions to prevent futile adjudications. |
The Court applied Bresco as the leading authority distinguishing jurisdiction from enforceability, recognizing exceptions where security is provided; it guided the balancing of insolvency rights and adjudication rights. |
| Bouygues (UK) Limited v Dahl Jensen (UK) Limited [2000] EWCA Civ 507 |
Incompatibility of adjudication with insolvency; discretion of courts not to enforce adjudication awards against insolvent companies. |
Referenced by Company B to support jurisdictional challenge; Court distinguished jurisdictional issues from discretionary enforcement decisions. |
| Enterprise Managed Services Ltd v McFadden Utilities Ltd [2009] EWHC 3222 (TCC) |
Adjudication unenforceability where claim relates only to part of the chose in action; importance of net balance assessment under insolvency rules. |
Used to illustrate difficulties of piecemeal adjudications in insolvency; Court noted adjudication here was for full net balance, differing from Enterprise. |
| Macob Civil Engineering Ltd v Morrison Construction Ltd [1999] BLR 93 |
Adjudication as a "rough and ready" process potentially causing injustice; limits of adjudication in complex disputes. |
Quoted to highlight differences between adjudication and insolvency accounting processes, supporting the incompatibility thesis. |
| Indigo Projects London Limited v Razin [2019] Bus LR 1957 |
Distinction between typical limited-issue adjudications and rare final account adjudications covering entire disputes. |
Supported the proposition that adjudications determining full net position are atypical and may be treated differently. |
| Absolute Living Developments Ltd (In liquidation) v DS7 Ltd [2018] EWHC 1432 (Ch) |
Public interest in permitting liquidators to proceed uninhibited in framing and funding actions; security for costs in insolvency context. |
Supported the public policy argument favoring liquidators’ freedom to pursue claims, relevant to adjudication enforcement. |
| Wimbledon Construction Company 2000 Limited v Derek Vago [2005] BLR 374 |
Principles relating to security for costs and insolvency; relevance to enforceability of adjudication awards. |
Applied to emphasize need for security to protect responding parties in insolvency enforcement context. |
| Philpott & Another v Lycee Fancais Charles De Gaulle School [2015] EWHC 1065 (Ch) |
Observation on the improbability of enforcement of adjudication awards in insolvency. |
Quoted to illustrate historical judicial skepticism about enforceability, but noted as not absolute. |
| Factortame Ltd v Secretary of State for Transport, Local Government and the Regions (No 8) [2002] EWCA 932 |
Champerty and maintenance; public policy considerations affecting enforceability of funding agreements. |
Guided analysis of funding agreement legitimacy and champerty in the context of third-party litigation funding. |
| Awwad v Geraghty & Co [2001] QB 570 |
Limits on conditional fee agreements and public policy relating to funding agreements. |
Supported the principle that non-compliant funding agreements are unenforceable and contrary to public policy. |
| Stocznia Gdanska SA v Latreefers Inc [2001] BCC 174 |
Champerty and abuse of process; distinction between unenforceable agreements and abuse of court process. |
Held that unenforceability of funding agreement does not automatically equate to abuse of process; abuse to be decided on facts. |
| Grovewood Holdings Plc v James Capel & Co Ltd [1995] Ch 80 |
General rule that champertous proceedings may be stayed as abuse of process, but with judicial caution. |
Considered but distinguished; Court emphasized no presumption that champerty equates to abuse of process. |
| Faryab v Smyth (unreported, 28 August 1998) |
Factors relevant to abuse of process in third-party funding; relationship and terms of funding agreements. |
Quoted extensively to frame the factual inquiry into abuse of process and trafficking in litigation. |
| Giles v Thompson [1994] 1 AC 142 |
Definition and public policy rationale for maintenance and champerty. |
Provided foundational principles on public policy and maintenance relevant to the funding agreement analysis. |
Court's Reasoning and Analysis
The Court began by distinguishing jurisdiction from enforceability, confirming that insolvency does not deprive an adjudicator of jurisdiction to decide disputes involving companies in liquidation, consistent with the Court of Appeal’s decision in Bresco. The key issue is the utility of enforcement, which is typically precluded because enforcement would deprive the responding party of security for its cross-claims under the insolvency rules, rendering adjudication futile.
The Court recognized that exceptions to this general rule may exist where safeguards are in place. Such safeguards include provision of satisfactory security for the sum awarded and for adverse costs orders, ringfencing of funds, or guarantees and insurance that protect the responding party’s rights. The adjudication in this case dealt with the final net balance under the contract, making it closer to the insolvency accounting process and thus more likely to qualify for an exception.
The Court carefully analyzed the funding arrangement with Company C, concluding that it falls within the scope of the Damages Based Agreements Regulations 2013 (DBAR 2013) and is unenforceable because the agreed percentage of recovery was not disclosed and likely exceeds the permitted 50%. This unenforceability renders the funding agreement champertous under common law principles.
However, champerty alone does not automatically amount to an abuse of process. The Court must consider whether the agreement, in its factual context, constitutes an abuse of the Court’s process. Due to insufficient disclosure of the funding agreement’s terms, the Court could not conclusively determine abuse of process on this summary judgment application.
The Court also addressed the adequacy of the guarantee offered by Company C, finding it insufficient to provide the certainty required to protect the Respondent’s interests, particularly regarding adverse costs orders. No ATE insurance policy had been provided at the application date, further weakening the security package.
Regarding procedural fairness, the Court found no compelling prejudice to Company B from its non-participation in adjudication or the absence of security at the outset, given the evolving state of insolvency-adjudication law at the time and the opportunity to challenge enforcement later.
In light of these considerations, the Court concluded that summary judgment should be refused because of unresolved factual issues concerning champerty and abuse of process and the inadequacy of security. If these issues had not arisen, the Court would have granted summary judgment but stayed execution pending further security arrangements.
Holding and Implications
The Court's final decision is to REFUSE the application for summary judgment to enforce the adjudicator’s decision.
The refusal is primarily due to unresolved factual issues about the legitimacy and enforceability of the funding agreement (potential champerty and abuse of process) and the inadequacy of the security offered to protect the Respondent’s interests. The Court indicated that, absent these concerns, an exception to the general rule against enforcement in insolvency cases might have applied given the nature of the adjudication and the security proposals.
The decision directly affects the parties by denying immediate enforcement of the adjudication award. However, the Court did not set any new precedent but rather applied and elaborated on existing principles from Bresco and related authorities, emphasizing the importance of adequate security and the factual inquiry into third-party funding arrangements in insolvency adjudication enforcement cases.