Adjudication Matters: May 2023

Is a company in administration entitled to enforce an adjudicator’s decision?

In JA Ball v St Philips Homes [1] JA Ball and St Philips contracted for the conversion of a commercial property into apartments for residential use. JA Ball entered administration before the works completed, which triggered an insolvency event under the construction contract. This meant that no further sums would be payable to JA Ball until the works were completed and defects made good. St Philips engaged third parties to assist in completing the works, which JA Ball argued amounted to an unlawful termination of the construction contract. JA Ball referred the parties’ dispute to adjudication.

The adjudicator determined that there was no unlawful termination of the contract and that a balancing payment was owed by St Philips to JA Ball. St Philips refused to comply, arguing that the adjudicator had breached the rules of natural justice.

JA Ball brought adjudication enforcement proceedings which were funded by a damages-based agreement (DBA) with Pythagoras Capital. St Philips maintained its argument that there had been a material breach of the rules of natural justice. St Philips also raised arguments in the alternative that a company in administration isn’t entitled to enforce an adjudicator’s decision; and that the enforcement of the decision would result in St Philips losing its security in a cross-claim for damages. St Philips also argued that the DBA was champertous, meaning that the claim was in the control of, or being pursued for the benefit of, Pythagoras rather than JA Ball, and should therefore be dismissed as an abuse of process.

The TCC declined to enforce the adjudicator’s decision due to a material breach by the adjudicator of the rules of natural justice. The adjudicator had determined the issues in the adjudication on the basis of a rationale that neither party had advanced in their submissions or been asked to address by the adjudicator.

The TCC then considered the impact of JA Ball’s administration on the enforcement of the adjudicator’s decision if there hadn’t been a breach of the rules of natural justice.

In previous cases, the courts have already confirmed that a company in insolvent liquidation facing cross-claims or claims of set off will generally not be entitled to enforce an adjudicator’s decision [2]. This is because all claims and cross-claims should be resolved in the liquidation in accordance with the Insolvency Rules [3] (with limited exceptions [4]).

An equivalent legislative provision doesn’t apply to a company in administration unless the company gives a “notice of distribution” to creditors. No notice of distribution had been given by JA Ball.

St Philips argued that the inability of JA Ball to give notice of distribution meant JA Ball was clearly insolvent and should be treated in the same way as a company in liquidation. St Philips relied on a previous case [5] which also concerned a company in administration where the administrators had yet to serve a notice of distribution and the court declined enforcement.

The TCC concluded that even if there hadn’t been a breach of natural justice it wouldn’t have enforced the decision because there was no prospect of JA Ball being able to repay St Philips if St Philips was successful in any subsequent litigation in relation to the cross-claim. But the TCC said that even in the case of a liquidation, refusal of enforcement isn’t inevitable, as there may be fact-specific circumstances that allow it. Also, the policy of enforcing adjudication awards may have to be balanced against the insolvency regime, which affects all creditors.

This leaves the door open and means it’s possible in principle for a company in administration to enforce an adjudicator’s decision, but the factual circumstances that would need to be shown aren’t clear and we haven’t seen such an enforcement in practice. Administrators may wish to consider carefully whether it’s worth incurring the costs of adjudication proceedings if a favourable decision can’t then be enforced.

The TCC also agreed with St Philips that the DBA was champertous because it didn’t comply with the Damages-Based Agreements Regulations 2013. In particular, it couldn’t be established that Pythagoras would receive less than or up to the maximum amount of payment allowed under the DBA Regulations from St Philips, if the enforcement was successful. The DBA also failed to include adequate reasoning for the maximum percentage of recovery set by Pythagoras.

When will a court grant an injunction to restrain ongoing and future adjudications?

Marbank Construction v G & D Brickwork [6] isn’t a new case, but it raises an interesting point which we thought was worth recapping about adjudicating disputes that have been the subject of court proceedings.

The TCC refused to grant an injunction to restrain G&D Brickwork from advancing further adjudications that related to the same or substantially the same issues as considered in previous County Court proceedings that had been struck out. This is an example of the court’s reluctance to fetter a party’s right to refer a dispute to adjudication at any time.

Under section 27 of the Senior Courts Act 1981, a court can grant an injunction to restrain a party from pursuing an adjudication in limited circumstances, including where the adjudication referral was unreasonable and/or oppressive.

G&D Brickwork brought proceedings in the County Court in respect of three separate projects that Marbank engaged it to work on. The three sets of proceedings were struck out. G&D Brickwork then brought three separate adjudications against Marbank. Marbank argued that the three adjudications were unreasonable and oppressive as they raised substantially the same issues as in the County Court proceedings. Marbank sought an injunction to prevent G&D Brickwork from pursuing the adjudications.

The TCC refused to grant the injunction to Marbank on the basis that parties should be able to refer a dispute to adjudication at any time and that Marbank had failed to show that the adjudications were unreasonable and oppressive.

CIC launches second edition of low value adjudication procedure

The Construction Industry Council has published a new second edition of its Low Value Disputes Model Adjudication Procedure (CIC LVD MAP) which is available to download for free on the CIC website here.

The key changes from the first edition are:

• To encourage more parties to use the CIC LVD MAP, the requirement for both parties’ consent has now been removed, where the Scheme for Construction Contracts applies;
• The fixed adjudicator fee structure has been increased to capped fees of £2,000 to £5,000 depending on dispute value, and a cap of £250 per hourly rate;
• The overall dispute value for which the CIC LVD MAP can be used has now increased from £50,000 to £100,000;
• Each adjudicator nominating body can now set its own appointment fee (this was previously prescribed at £250); and
• Timetable for the adjudication has changed, increasing the time available to the adjudicator to make the decision by 1 week.

Please contact Carly Thorpe if you have any queries about the points covered in this edition or would like to know more about adjudication.

Walker Morris is delighted to be hosting an event for the Adjudication Society on Wednesday 5 July 2023. You can register to attend and find out more here.

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[1] JA Ball Limited (in administration) v St Philips Homes (Courthaulds) Limited (unreported), 3 February 2023 (TCC)

[2] Bouygues (UK) Limited v Dahl-Jensen (UK) Limited [2000] EWCA Civ 507

[3] Insolvency (England and Wales) Rules 1986 (SI 1986/1925) as amended by the Insolvency Rules 2016 (SI 2016/1024)

[4] Bresco Electrical Services Limited (in liquidation) v Michael J Lonsdale (Electrical) Limited [2020] UKSC 25

[5] Straw Realisations (No 1) Limited v Shaftsbury House (Developments) Limited [2010] EWHC 2597

[6] Marbank Construction Limited v G & D Brickwork Contractors Limited and another [2021] EWHC 1985 (TCC)