As regular visitors to this blog will be aware the Supreme Court decided in Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd  UKSC 25 that an insolvent party can adjudicate a dispute. It was, however, noted that an adjudicator’s decision may not be enforced due to the insolvency and that this was a decision that would rest with the court in the enforcement proceedings.
In the first reported case applying Bresco, Fraser J has set out five principles to apply when considering whether an insolvent party can obtain summary judgment in enforcement proceedings. The five principles set out by Fraser J are as follows:
- Whether the dispute in respect of which the adjudicator has issued a decision is one in respect of the whole of the parties' financial dealings under the construction contract in question, or simply one element of it.
- Whether there are mutual dealings between the parties that are outside the construction contract under which the adjudicator has resolved the particular dispute.
- Whether there are other defences available to the defendant that were not deployed in the adjudication.
- Whether the liquidator is prepared to offer appropriate undertakings, such as ring-fencing the enforcement proceeds, and/or where there is other security available.
- Whether there is a real risk that the summary enforcement of an adjudication decision will deprive the paying party of security for its cross-claim.
In respect of the first principle, Fraser J suggested that if what had been referred to adjudication by the insolvent party was a tightly defined dispute which left other disputes outwith the remit of the adjudication then such decisions were unlikely to be enforced. With regard to the second and third principles, Fraser J was intimating that one needs to consider insolvency set-off and whether the other mutual dealings between the parties result in monies being due from the insolvent party to the paying party (insolvency set-off requires an account to be taken of all mutual dealing between the parties with the sums being due from one party being set-off against the sums due from the other). Finally, the fourth and fifth principles were concerned with what security was on offer to the paying party from the liquidator in respect of the paying party’s cross-claim. If there is none then enforcement is much more unlikely.
The upshot of the above is that although an insolvent party can adjudicate, getting a decision in favour of an insolvent party enforced is going to be fraught with difficulty.
Case: John Doyle Construction Ltd v Erith Contractors Ltd  EWHC 2451 (TCC).