The Russell-Cooke litigation team has successfully acted for the responding party in the adjudication enforcement proceedings Meadowside Building Developments Ltd v 12-18 Hill Street Management Company Ltd [2019] EWHC 2651 (TCC), a case which raised important points of principle about the relationship between adjudication and liquidation.

Adjudication and liquidation

Adjudication is a fast track process contained within construction contracts which allows parties to quickly (usually within 28 days) obtain a decision on a dispute. This decision will then bind the parties unless and until the dispute is finally determined or resolved and can be enforced on a special fast-track process in the Technology and Construction Court.

Where a company is in liquidation, there is an incompatibility between adjudication and the process for assessing the net balance due from or to the company under the insolvency rules. In Bresco Electrical Services Ltd (In Liquidation) v Michael J Lonsdale (Electrical) Ltd; Cannon Corporate Ltd v Primus Build Ltd [2019] EWCA Civ 27, the Court of Appeal confirmed that this inconsistency means that an adjudication award in favour of a party in liquidation will only be enforced in exceptional circumstances.

The Meadowside exception

In Meadowside, the Court established a new exception to the ordinary position. In summary, the Court held that an adjudication is likely to be enforceable by a company in liquidation where:

  • the adjudicator can determine the final net position between the parties; and
  • satisfactory security is provided both:
    • so that any sum awarded in the adjudication is repayable if the responding party successfully overturns the decision within a reasonable time of the enforcement; and
    • in respect of any adverse costs orders made against the company in liquidation.

The Court suggested that satisfactory security might be provided through a combination of: (a) ring-fencing the sums enforced; (b) a third party providing a guarantee or bond; and/or (c) ATE insurance. Any third party funding or security could also not amount to an abuse of process.

Funding and abuse of process

Senior associate Mark Fletcher and associates Ricky Cella and Michael Dimas in the commercial litigation team acted for the Defendant. Arthur Graham-Dixon of Atkin Chambers was instructed as counsel. Drawing on the firm's regulation team expertise, and in particular the input of John Gould, Senior Partner and author of the Law of Legal Services, they challenged the funding agreement on which the liquidator relied because it involved the unjustified interference of a third party in the parties' dispute.

The team was able to establish on behalf of the Defendant that the liquidator had entered into an unenforceable agreement under the Damages Based Agreement Regulations 2013. The funding agreement was therefore contrary to public policy and champertous. As the funding agreement was potentially also an abuse or process, the Court refused to enforce the adjudication decision.

The Court also found that in any event the form of security offered was inadequate. In particular, the Court was not satisfied that the proposed guarantor would have sufficient funds to be good for the guarantee offered.

Commercial litigation partner Elliot Elsey said: "This was a complex case and it was very satisfying to achieve this outcome. The judgment raises several significant points and was achieved as a result of a genuine team effort, demonstrating the value of the depth and breadth of Russell-Cooke's expertise."