John Doyle Construction Ltd v Erith Contractors Ltd

Factual and Procedural Background

The appellant, a construction company in liquidation since 2013 ("Company A"), entered into a sub-contract with the respondent, a solvent construction company ("Company B"), relating to hard landscaping works at a major development site. Company A ceased work in 2012 and entered liquidation in 2013. A dispute arose over Company A's final account under the sub-contract. Company A's liquidators assigned the claim to a third party company ("Company C") specializing in purchasing litigation claims, although the assignment was ineffective as a legal assignment due to a non-assignment clause in the contract and lack of consent from Company B.

In 2018, Company A commenced adjudication against Company B seeking approximately £4 million, with Company B counterclaiming for overpayments. The adjudicator ruled in favor of Company A for about £1.2 million. Company B issued a Notice of Dissatisfaction. More than two years later, Company A sought to enforce the adjudicator's decision by way of summary judgment without providing clear or adequate security to Company B against its set-off and counterclaim risks.

The trial judge dismissed the summary judgment application in October 2020, finding the security offered inadequate. Company A appealed, raising three grounds related to the adequacy and nature of security offered, and a wider legal question about whether a company in liquidation is entitled to summary judgment to enforce an adjudicator's decision in the face of continuing set-off and counterclaims. The Court of Appeal granted permission to appeal and heard the case in July 2021.

Legal Issues Presented

1. Whether the liquidators of a company in liquidation made a clear and unequivocal offer of security by proposing payment of the adjudicator's award into an escrow account or into court, and whether the trial judge erred by not addressing this alleged offer.
2. Whether the security offered for any future costs orders in favor of the respondent, including an After The Event (ATE) insurance policy and a Deed of Indemnity, was adequate and whether the trial judge erred in rejecting these offers.
3. Whether Insolvency Rule 6.42 provides adequate security for costs orders in favor of the respondent in subsequent proceedings, and whether the trial judge erred in holding it did not.
4. Whether a company in liquidation is entitled to summary judgment to enforce an adjudicator's decision in circumstances where there is a continuing set-off and cross-claim by the respondent.

Arguments of the Parties

Appellant's Arguments

• The liquidators had offered adequate security by proposing payment of the adjudicator's award into an escrow account or into court, which the judge failed to consider.
• The Deed of Indemnity, possibly supplemented by side letters, provided sufficient security for future costs orders in favor of the respondent.
• Insolvency Rule 6.42 should be regarded as providing adequate security for any costs orders made in favor of the respondent.
• There is an entitlement for a company in liquidation to obtain summary judgment enforcing an adjudicator's decision, particularly where the adjudicator's decision represents a net balance and there are no significant cross-claims or non-contractual claims.
• Summary enforcement is essential to uphold the utility of adjudication as a dispute resolution mechanism, even for companies in liquidation.

Respondent's Arguments

• No clear or unequivocal offer was made by the liquidators to pay the adjudicator's award into escrow or into court; the security offered was limited to a letter of credit and an ATE insurance policy, both inadequate.
• The Deed of Indemnity was inadequate because it was designed to secure costs for the appellant's claims, not for costs orders in favor of the respondent, and lacked evidence of insurers willing to provide it.
• Insolvency Rule 6.42 does not provide security for costs orders in favor of the respondent, particularly where there is no evidence of available assets post-litigation.
• Summary judgment is inappropriate where there is a continuing set-off and cross-claim, especially given the provisional nature of adjudicator decisions and the insolvency set-off regime.
• The arrangements between the appellant's liquidators and the third party company might be champertous and invalid under Damages Based Agreement Regulations, though this was not addressed due to time constraints.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by examining the adequacy of the security offered by the appellant (Company A) and its assignee (Company C). It found that the only security formally offered was a letter of credit and an ATE insurance policy, both of which the trial judge had correctly found inadequate. The appellant's claim that the liquidators had offered security by way of payment into escrow or court was rejected as neither clear nor unequivocal, and inconsistent with the assignment arrangements which required payment to Company C. The court emphasized that any undertakings or security must be clear, evidenced, and unequivocal at the time of the hearing, not vague or unsubstantiated oral suggestions.

Regarding security for future costs orders in favor of the respondent, the court affirmed the trial judge's analysis that the ATE insurance policy did not provide adequate security, and that the Deed of Indemnity was flawed both in concept and in evidential support. No insurer had committed to providing the Deed as security for the respondent's costs in potential proceedings. The court rejected the appellant’s attempt to rely on an email not presented to the trial judge, and noted that the appellant’s approach to security was deficient and inconsistent.

The court also dismissed the argument that Insolvency Rule 6.42 provides adequate security for future costs orders, noting the absence of evidence that assets would be available to meet such costs and that the rule prioritizes liquidator-incurred expenses, not costs awarded against the liquidator in separate proceedings.

On the wider legal issue, the court reviewed the law on insolvency set-off and equitable set-off, emphasizing that only the net balance after set-off can be enforced or recovered. The adjudicator's decision is provisional and does not amount to a final determination of the net balance where cross-claims remain unresolved. The court relied on binding authority including Hanak v Green, Stein v Blake, and Bouygues to conclude that summary judgment to enforce an adjudicator's decision in favour of a company in liquidation is generally inappropriate where there are continuing set-off and cross-claims.

The court rejected the appellant's submission that Bresco established a right to summary enforcement regardless of insolvency set-off, clarifying that Bresco concerned the right to commence adjudication, not the right to summary enforcement. The court noted that summary enforcement may be granted with a stay of execution or refused outright in such circumstances.

Finally, the court considered the appropriateness of a stay of execution, concluding that even if summary judgment were granted, a stay would be appropriate given the insolvency context and the risks to the respondent. The court also noted unresolved issues raised in the respondent’s notice concerning potential champerty in the arrangements between the liquidators and Company C, but declined to address these due to time constraints.

Holding and Implications

The appeal was DISMISSED on all three grounds.

The court held that:

• The trial judge correctly found the security offered by the appellant and its assignee inadequate and was entitled not to consider alleged alternative offers that were not clearly made or evidenced.
• The Deed of Indemnity and the ATE insurance policy did not provide adequate security for potential future costs orders.
• Insolvency Rule 6.42 does not itself provide adequate security for costs orders in this context.
• A company in liquidation is not entitled to summary judgment enforcing an adjudicator's provisional decision in circumstances where there is a continuing set-off and cross-claim that has not been finally determined.
• Where summary judgment might be granted in such circumstances, a stay of execution would ordinarily be appropriate.

The decision underscores the primacy of insolvency set-off principles over adjudication enforcement in insolvency contexts and affirms that enforcement of adjudicator decisions against insolvent companies requires clear, unequivocal security arrangements to protect respondents. It confirms that adjudication remains a useful dispute resolution tool for insolvent companies but that enforcement by summary judgment is limited by insolvency law. No new precedent was established beyond the application and clarification of existing principles.