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uk/news-and-media/general/john-doyle-construction-limited-v-er
ith-contractors-limited-2020-ewhc-2451-tcc-adjudication-by-insolvent-referring-parties

JOHN DOYLE CONSTRUCTION LIMITED V ERITH CONTRACTORS LIMITED

[2020] EWHC 2451 (TCC) – ADJUDICATION BY INSOLVENT REFERRING
PARTIES

18/11/2021

Earlier this year we reported on the Supreme Court decision in Bresco Electrical Services
Ltd (in Liquidation) v Michael J Lonsdale (Electrical) Ltd which confirmed that companies
in liquidation are able to refer claims to an adjudicator (please see our previous article here).

In the case of John Doyle Construction Limited (JDC) v Erith Contractors Limited (Erith).
JDC was in liquidation when it commenced an adjudication against Erith. It was successful
with its claim, and then sought to enforce the adjudicator’s decision in its favour. However,
on enforcement, the Court decided that whilst JDC had been entitled to commence the
adjudication, when considering enforcement there were a number of factors relating to its
insolvency which needed to be considered (as set out below).

BACKGROUND
John Doyle Construction Limited (JDC) (a sub-contractor) carried out landscaping works in
connection with the Olympic Park in 2012, on behalf of Erith (a contractor engaged by the
management contractor – BAM Nuttall Ltd. (BAM)). JDC went into administration in June
2012 and liquidators were appointed in 2013.

JDC (in liquidation) commenced an adjudication for c. £4million in 2018, which was stayed
(postponed) to allow the judgment in Bresco v Lonsdale to be determined. JDC was
awarded c. £1.2million by the adjudicator and sought to enforce this decision by way of
summary judgment. Erith resisted the enforcement application.

Upon enforcement, Justice Fraser found in favour of Erith and JDC was not granted
summary judgment to enforce the adjudication decision.

PRINCIPLES TO BE CONSIDERED IN ENFORCEMENT

In reaching his decision, Justice Fraser considered the cases of Bresco v Lonsdale and
Bouygues (UK) Limited v Dahl Jensen (UK) Limited [2000]. He used these cases to distil the
following principles, which are to be considered when deciding whether to enforce an
adjudication decision in favour of an insolvent party:

1. “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.
2. Whether there are mutual dealings between the parties that are outside the construction contract
under which the adjudicator has resolved the particular dispute.
3. Whether there are other defences available to the defendant that were not deployed in the
adjudication.
4. Whether the liquidator is prepared to offer appropriate undertakings, such as ring-fencing the
enforcement proceeds, and/or where there is other security available.
5. 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.”
To expand a little on the above:

 Principle 1 applies where the parties have strategically referred a small, defined
dispute to adjudication (excluding other disputes existing between the parties under
the contract). If this is the case, it will not help the insolvent referring party to enforce
any decision. Justice Fraser specifically referred to ‘smash and grab’ adjudications here,
noting that decisions relating to such adjudications “would rarely if ever… …be susceptible
to enforcement by way of summary judgment by a company in liquidation”.
 Principles 2 and 3 mean that when considering whether to enforce a decision by
summary judgment, the Court will take into account dealings with the same
counterparty on other contracts and grounds for non-payment of the sum claimed
which may be available to the Responding Party, even if they were not raised or
considered in the adjudication from which the decision stems. However, the existence
of another claim will not in itself defeat an application for summary judgment. Its
ability to do this will depend upon its size and nature.
 Principles 4 and 5 relate to the ability of the paying party to successfully bring a
cross-claim. It concerns the availability of the enforcing party’s funds in relation to
any such claims. If the amount to be paid upon enforcement will be dissipated by the
liquidators to creditors there is often unlikely to be any funds to meet a subsequent
cross-claim. If there is a ‘real risk’ that enforcement would deprive the paying party of
security for its cross-claim then the decision will not be enforced.
This means that to enforce a decision, the insolvent company may need to provide security
for the funds it obtains as a result of summary judgment and any funds necessary to meet a
cross-claim (or ‘ring-fence’ the funds it receives and postpone dissemination). This is
discussed further below.

THE ADEQUACY OF FORMS OF SECURITY

JDC sought to rely on two separate forms of security to meet a subsequent claim by Erith; a
letter of credit from a bank and an After the Event (“ATE”) insurance policy. Justice Fraser
considered that, in this case, the security offered was inadequate.

Justice Fraser considered that the credit letter was in fact just a draft letter of intent (rather
than an actual letter of credit), offered by a third party and not the liquidators.

In respect of the ATE policy, Justice Fraser determined that it would only have covered an
adverse costs order in favour of Erith. In addition, he considered that the ATE policy was
insufficient because it contained avoidance and exclusion clauses which could have resulted
in a refusal by the insurers to pay out.

The sum paid under enforcement is the most important element to be safeguarded (so that it
can be repaid if necessary), with security for costs being a secondary consideration. To
enforce an adjudicator’s decision an insolvent company will need to give reasonable
assurances that, should the paying party later overturn the adjudicator’s decision, the
insolvent company will be able to repay the capital sum and meet an adverse costs order. It
may be possible to do this if security is offered by the liquidators or as an actual letter of
credit (depending upon the terms), but the specifics of what is sufficient will depend upon
the facts of the case.

EFFECT OF THE JUDGMENT

The judgment does not affect an insolvent company’s right to commence an adjudication.
However, unless that adjudication decision deals with all claims and cross-claims between
the parties, and unless the insolvent company can offer security for the sums it is to be paid
under the enforcement and any funds needed for potential cross-claim costs orders, an
insolvent company will find it difficult to obtain a summary judgment enforcing the
adjudicator’s decision. That said, provided insolvency practitioners can adequately meet the
requirements outlined in this case, it does provide a potential fast track and far less
expensive route for companies in liquidation to pursue claims by way of liquidation which
might otherwise might not have been pursued due to lack of funds.
Adjudication enforcement by companies in liquidation: Court of Appeal raises
fundamental objections

United Kingdom 12.11.2021

A recent Court of Appeal decision has criticised obiter comments made by the Supreme Court in Bresco v
Lonsdale to the effect that adjudication decisions in favour of companies in liquidation could in certain
circumstances, and with appropriate safeguards, be enforced by way of summary judgment. The Court of
Appeal has indicated that such an approach would be at odds with the mandatory right of set-off arising
under the Insolvency Rules. The Court of Appeal’s comments in this respect are themselves obiter and will
give rise to uncertainty in this area of the law.

Bresco v Lonsdale: a recap

Under the Insolvency (England and Wales) Rules 2016 (the “Insolvency Rules”), a
mandatory set-off takes effect upon a company’s entry into liquidation. The set-off applies
where there have been mutual dealings between the company and a creditor. The effect of
the rule is to net-off those dealings so that only the balance is provable in the liquidation.
The rule is an exception to the pari passu principle (i.e. equal treatment) as the set-off
provides the creditor with a full recovery of part of its claim. Without the rule, the creditor
would be obliged to make full payment of any amounts owed to the company, whilst only
being able prove in the liquidation for its own claims. If the dividend from the liquidation is
small, the creditor could well be required to pay more into the liquidation than it would
receive in return despite the fact that its claims against the company exceed the company’s
claims against it.
Insolvency set-off takes place automatically upon liquidation and overrides all other set-offs
or contract terms to the contrary. Parties cannot contract out of insolvency set-off or waive
its operation.
The interaction between the Insolvency Rules and construction adjudication was considered
recently by the Technology and Construction Court, the Court of Appeal and the Supreme
Court in Bresco v Lonsdale (see our Law-Nows on these decisions here, here and here). In
summary, the TCC initially held that mandatory set-off under the Insolvency Rules deprived
an adjudicator of jurisdiction to determine disputes under a construction contract involving
the company in liquidation. That was because the rights under the construction contract
were said to be replaced by the set-off mechanism under the Insolvency Rules.
The Court of Appeal overruled this finding, considering that adjudications could still be
validly commenced by companies in liquidation, but held there to be a basic incompatibility
between adjudication and the Insolvency Rules. This was reflected in previous cases which
had held that the court will not, save in exceptional circumstances, enforce adjudication
decisions in favour of companies in liquidation where the responding party has a cross-claim.
To do so would force the responding party to pay the amount of the adjudication decision,
while being left to prove in the liquidation for its cross-claim and receive only a partial
recovery together with other unsecured creditors. In such circumstances the responding
party would be deprived of the benefit it was intended to have through the set-off under the
Insolvency Rules. Accordingly, the Court of Appeal found that, save for exceptional
circumstances, an adjudication by a company in liquidation would be liable to be stopped by
the court as an exercise in futility where the other party has a cross-claim (i.e. because any
adjudication decision would not be enforceable).
The Supreme Court subsequently reversed the Court of Appeal’s decision, finding that
difficulties in enforcing an adjudication decision should not prevent a company in
liquidation from pursuing adjudication as a dispute resolution procedure in its own right. As
the Court noted, “adjudication has, as was always intended, become a mainstream method of ADR,
leading to the speedy, cost effective and final resolution of most of the many disputes that are referred to
adjudication. Dispute resolution is therefore an end in its own right, even where summary enforcement may be
inappropriate or for some reason unavailable.”
The Supreme Court also gave obiter guidance as to the approach to be taken to the
enforcement of adjudication decisions in such circumstances. The Court noted it will “not be
in every case that summary enforcement will be inappropriate”. In particular, if the adjudicator has
been able to decide on all claims and cross-claims between the parties such that a
determination can be given of the net balance, there was “no reason arising merely from the
existence of cross-claims why it should not be summarily enforced”. Any concerns as to the fairness of
such an approach could be dealt with at the enforcement stage through appropriate security
arrangements, such as an undertaking from the liquidator to ring-fence the enforcement
proceeds. In this regard, the Supreme Court appeared to approve of a TCC decision reached
after the Court of Appeal’s decision (Meadowside v Hill Street Management) where enforcement
was, in principle, allowed subject to the giving of security for the amount of the decision to
be enforced and also for the other party’s costs (see our Law-Now on this decision here).
A recent Court of Appeal decision now appears to depart from the Supreme
Court’s obiter comments as to enforcement and has thrown doubt on whether adjudication
decisions in favour of companies in liquidation can be enforced even with appropriate
security arrangements.

John Doyle Construction Limited (In Liquidation) v Erith Contractors Limited

BAM Nuttall Ltd was engaged by the Olympic Development Authority to carry out,
amongst other things, certain construction works at the Olympic Park. BAM required a
trade contractor to perform hard landscaping works and Erith Contractors Limited (“Erith”)
was pre-qualified to tender, which it did but in agreement with John Doyle Construction
Limited (“JDC”) that the works would be substantially performed by JDC. The contract
between Erith and JDC was an NEC3 form and was entered into in July 2010.
JDC entered into administration in June 2012 just before completion of the works and
subsequently entered a creditors voluntary liquidation in June 2013. Erith was obliged to
complete the sub-contract works itself under its contract with BAM.
A dispute arose as to JDC’s final account. The liquidator assigned JDC’s claim to Henderson
& Jones (“HJ”), litigation funders, for an immediate payment of £6,500, giving HJ the right
to pursue the claim on JDC’s behalf and retain 55% of the net recovery.
HJ commenced an adjudication (on JDC’s behalf) in January 2018, claiming from Erith
approximately £4 million, which was claimed to be due on JDC’s final account. The
adjudicator awarded JDC approximately £1.2 million, including VAT and interest, and
HJ/JDC then claimed for enforcement of the adjudicator's decision by way of summary
judgment. Erith opposed enforcement on a number of grounds.
The TCC at first instance followed the approach adopted in Meadowside and supported by the
Supreme Court’s obiter comments in Bresco. Summarising this position, the court set out three
requirements for the enforcement of an adjudication decision in favour of a company in
liquidation:
 The decision would need to have resolved (or haven taken into account) all of the
various elements of the overall financial dispute between the parties to the
construction contract;
 Mutual dealings on other contracts, or other defences, if they had not been taken into
account by the adjudicator, would need to be taken into account by the court on the
summary judgment application; and
 There would be no “real risk” that summary enforcement of the adjudicator's decision
would deprive the paying party of security for any cross-claim.
Here, as the dispute related to the valuation of JDC’'s final account, summary judgment was
potentially available, however, if the dispute had been more narrowly defined, such as the
valuation of a single component part of an interim payment, or one single head of claim,
then it would not. In the event, however, the court held that the security offered by JDC was
inadequate and refused enforcement. There was, for example, no undertaking from the
liquidators to ring fence the proceeds of the adjudication decision. Accordingly, there was no
assurance that JDC would be able to repay the sum awarded by the adjudicator if the
decision was later reversed, as well as to cover any adverse costs order.

The Court of Appeal

HJ/JDC appealed the TCC’s decision as to the adequacy of the security offered. The Court
of Appeal rejected the appeal on this point, for similar reasons to the TCC, but went on to
make obiter comments as to the circumstances in which it would be appropriate to grant
enforcement of an adjudication decision in favour of a company in liquidation. In doing so,
the Court of Appeal appears to have expressed its disagreement with the obiter comments
made by the Supreme Court in Bresco.
In the Court of Appeal’s view, even where an adjudicator has dealt with all claims and
cross-claims and appropriate security has been offered, it would not usually be appropriate
to grant summary judgment. This is because it would still prejudice the ability of the
creditor to challenge the adjudication decision and take advantage of the security granted by
Insolvency Set-Off. The Court noted that an adjudicator's decision is provisionally binding
in nature and does not finally determine the "net balance" between the parties even if the
adjudicator has considered all relevant claims and crossclaims. The Court therefore
highlighted the same incompatibility between the Insolvency Rules and statutory
adjudication which it had relied on in Bresco, but instead of preventing adjudication
altogether this was now said to prelude the enforcement of an adjudication, save where the
adjudication decision is not or cannot be challenged, and/or any cross-claims can be
disposed of by summary judgment in the usual way.
The Court disagreed with HJ/JDC that the interests of enforcing adjudication decisions and
safeguarding Erith’s entitlement to Insolvency Set-Off could be balanced through the
approach taken in Meadowside:
“It is not a question of security; it is a question of the insolvent company's cause of action being for the net
balance only. It is not a matter of discretion because it is impossible to waive or disapply the Insolvency Rules.
As my lord, Lord Justice Lewison put it during argument, insolvency set-off must apply to adjudication; it is
not somehow an exception. To find otherwise would give rise to incoherence.”

Conclusion and implications

This decision would appear to leave the law in this area in a state of uncertainty. The
approach taken by the TCC in the Meadowside case appeared to be supported by the Supreme
Court’s obiter comments in Bresco. These comments have now been criticised by the Court of
Appeal in yet still further obiter comments. Scope for argument is likely to remain until the
point is finally determined by the Supreme Court.
If the Court of Appeal’s comments as to enforcement are to be applied going forward, they
may well mark the end of attempts to enforce adjudication decisions in favour of companies
in liquidation. The Court’s judgment makes clear that such decisions will only be enforced in
rare circumstances, such as where the decision has become finally binding due to a failure to
serve a Notice of Dissatisfaction. The Court’s comments may therefore also mark a decline
in the market for assignment of construction claims from insolvent companies to litigation
funders, such as occurred in this case to HJ.
References:
Michael J Lonsdale (Electrical) Ltd v Bresco Electrical Services Ltd [2018] EWHC 2043 (TCC)
Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd [2019] EWCA Civ 27
Meadowside Building Developments Ltd v 12-18 Hill Street Management Company Ltd [2019] EWHC
2651 (TCC)
Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd [2020] UKSC 25
John Doyle Construction Limited (In Liquidation) v Erith Contractors Limited [2021] EWCA Civ
1452
https://www.constructionnews.co.uk/legal/is-this-the-end-for-adjudications-during-insolven
cy-05-11-2021/

Is this the end for adjudications during insolvency?

05 NOV 2021
Peter Clyde is a legal director in the construction and engineering disputes team at law firm Addleshaw
Goddard

Does the Court of Appeal decision in the case of John Doyle Construction Ltd v Erith Contractors
Ltd mark the end of insolvent adjudications? No, it doesn’t. Sorry to ruin the suspense.
Think back to June 2020. The UK was tentatively emerging from the first lockdown, live
sport was back on TV (even if it was South Korean football) and the Supreme Court was
handing down a seminal decision in Bresco Electrical Services Ltd (in liquidation) v Michael J
Lonsdale (Electrical) Ltd, confirming that insolvent parties to construction contracts could
adjudicate at any time and should not be restrained from doing so.
That decision overturned an earlier Court of Appeal finding, led by Lord Justice Coulson,
that adjudication while a party was insolvent was an exercise in futility, incompatible with the
insolvency regime.

“It would be unfortunate if Lord Justice Coulson’s narrower view were to prevail. For
subcontractors in insolvency and insolvency practitioners alike, adjudication offers an
avenue for swift recovery of sums due”

Taking an opposing view in his Supreme Court judgement, Lord Briggs described
adjudication as a beneficial means of resolving disputes, much speedier and cheaper than a
court. He considered there was no basis to conclude that adjudication is incompatible with
the insolvency process or with the requirement to deal with cross-claims in insolvency by set
off and “still less an exercise in futility”.

The Supreme Court’s decision on Bresco v Lonsdale triggered a rush of adjudications brought
by insolvent parties and a new industry sprang up to fund and run them. The question was
turning to the security and other protections that ought to be in place to secure summary
enforcement in those circumstances.
But, ruling on the appeal in John Doyle v Erith, Lord Justice Coulson returned to pick a bone
with the Supreme Court. Reprising his theme of “fundamental incompatibility”, he
considered that adjudicators’ decisions are in most cases provisional and that provisional
decisions are incompatible with the insolvency regime’s requirement that the net balance
must finally be determined.
When “taken in the round”, he argued, Lord Briggs in the Supreme Court cannot have
meant that a company in liquidation was entitled to enter judgement, let alone recover
monies, “on the basis of a provisional decision, in circumstances where there was a
continuing set off and cross-claim”.

Not the end of adjudication in insolvency

Cue the sound of a giant door slamming on insolvent adjudication? That is certainly what
some concluded. But nothing is that simple.
First, the Court of Appeal’s comments in this regard are obiter and are not binding
(although they could be persuasive) in England and Wales, never mind in Scotland.

Second, Lord Justice Coulson himself considered there would be exceptions. Adjudicators’
decisions could still be enforced if they do finally determine the net balance – where
circumstances give the decision finality.

Third, we may see a battle of non-binding obiter comments. At high court level in England
and Wales, and in the Scottish courts, judges may decide that since the Supreme Court
outranks the Court of Appeal, the similarly non-binding comments of Lord Briggs win out
where there is inconsistency. It certainly appears as though Lord Briggs was imagining a
wider set of circumstances in which an adjudicators’ decision would be appropriate.

He proposed a number of circumstances in which decisions could be enforced, including

where any cross-claim can be determined in the same adjudication. He considered that the
risks of enforcing in insolvency could in some cases be dealt with at the enforcement stage,
with appropriate undertakings as needed.

Fourth, there is the question of whether the logic of Lord Justice Coulson’s comments on
liquidation and Rule 14.25 apply equally in other insolvency settings, especially where there is
no mandatory set off. Lord Briggs refers in Bresco v Lonsdale to the similar application of Rule
14.24 in a distributing administration but what about when no distribution is envisaged? And
let’s not forget that Scotland has its own insolvency rules.
Finally, it is likely that the Supreme Court will get another run at this sooner or later. It
might be expected to favour the Lord Briggs approach, where it diverges from John Doyle v
Erith.

In my view, it would be unfortunate if Lord Justice Coulson’s narrower view were to prevail.
For subcontractors in insolvency and insolvency practitioners alike, adjudication offers an
avenue for swift recovery of sums due. This route is all the more valuable in the current
market, where many parties are one step away from insolvency in light of spiralling costs and
uncertainty of supply.

Insolvency is not always the death knell for such companies but time is often of the essence
to facilitate recovery, and speed is where adjudication comes into its own.
https://hklegal.co.uk/2021/11/lessons-from-the-court-of-appeal-how-not-to-go-about-enf
orcing-a-judgment-on-behalf-of-a-company-in-liquidation/

LESSONS FROM THE COURT OF APPEAL: HOW NOT TO GO ABOUT

ENFORCING A JUDGMENT ON BEHALF OF A COMPANY IN
LIQUIDATION
November 2, 2021

In John Doyle Construction Limited v Erith Contractors Limited [2021], the Court of Appeal
(“CoA”) discussed the principles which apply when enforcing an adjudicator’s decision in
favour of an insolvent company.

Background

In 2010, Erith Contractors Limited (“Erith”) engaged John Doyle Construction Limited
(“JDC”) to undertake hard landscaping works at the Olympic Park in East London (the
“Works”) under an amended NEC3 sub-contract (the “Sub-Contract”). Before completion
of the Works, JDC went into liquidation. In 2018, JDC commenced an adjudication against
Erith for sums it claimed to be due under its final account. The adjudicator awarded JDC
c.£1.2 (the “Decision”). Despite its insolvency JDC sought to enforce the Decision by
applying for summary judgment.

At first instance, the TCC considered in detail the requirements which must be satisfied
before summary judgment can be granted in favour of a company in liquidation, including
the need for the insolvent company to provide adequate security for both the sum of any
potential crossclaims by the defendant and the costs of those proceedings (for further detail,
see our previous bulletin on the TCC’s judgment here). Having considered these
requirements, the TCC held that JDC had failed to provide adequate security and declined to
enforce the Decision.

Grounds for Appeal

Permission to appeal the TCC’s judgment was granted on 10 December 2021 on three
grounds: (1) the TCC had failed to consider alternative security which JDC had offered; (2)
the TCC had erred in its interpretation of a Deed of Indemnity (the “Deed”) offered as
security for Erith’s costs; and (3) the TCC had erred in law by holding that Insolvency Rule
6.42 did not provide adequate security for Erith’s costs.

In the background, a wider issue for the CoA to consider was whether a company in
liquidation with an adjudicator’s decision in its favour on its final account, facing a
continuing set-off and counterclaim, should be entitled to summary judgment at all.
Issues to be considered by the CoA

1.What is the burden on a claimant seeking to enforce and adjudicator’s decision?

A company in liquidation seeking to enforce an adjudicator’s decision should take all

necessary steps to ensure that its position is “crystal clear”, to be as efficient as possible and
make evident the issues the judge is being asked to decide. Any undertakings or security
offered need to be “clear, evidenced and unequivocal”. It is not for the judge to turn “vague
suggestions” into offers or agreements.

2. Security for Erith’s crossclaim – is payment into an Escrow Account or the Court
Sufficient?

JDC submitted that at first instance it had made an alternate offer of security, that the
judgment sum be paid into an Escrow account or the Court by Erith, and that the TCC had
failed to consider the same.

The starting point for the CoA was whether this alleged offer had actually been made.
Having considered the evidence, the CoA concluded that a clear and unequivocal offer that
the judgment sum be paid into an Escrow account or the Court had not been made. To the
contrary, the only security that had been offered was a letter of credit or an ATE insurance
policy, both of which had been considered by the TCC.

Notwithstanding its finding that an alternate offer had not been made, the CoA considered
whether a payment into Court of a judgment sum was, in principle, a proper way in which
security could be provided. Given the same would deprive both parties of the cash, the CoA
commented that, if so, it would be “the worst of all possible worlds” and contrary to the
underlying philosophy of construction adjudication (i.e. to maintain cash-flow). The CoA
declined to conclude definitively whether a payment into Court represented a proper
method of security but commented that, if it was, it should be “very much a last resort”. On
the basis that there was no clear alternate offer for security, JDC’s first ground of appeal was
dismissed.

3. Security for Erith’s costs of pursuing a crossclaim

JDC’s second ground of appeal was based upon a suggestion that the TCC had erred in its
interpretation of a Deed offered as security for Erith’s costs of pursuing a crossclaim. JDC
argued that, on its true interpretation, the security provided by the Deed was sufficient.
Upon review, the CoA found “insurmountable difficult[ies]” with the Deed. In particular, “what
was missing from the evidence was any statement by any insurer that they were prepared to offer
Erith this Deed in this case, as security for any orders for Erith’s costs.” The Deed was merely a
template and named a firm of insurers who JDC expressly stated were not providing the
indemnity. Clearly, this was not adequate evidence of an indemnity.
Dismissing JDC’s second ground of appeal, the CoA noted “In my view, that is how not to go
about enforcing a judgment on behalf of a company in liquidation when there is an extant cross-claim. The
building blocks of any security being offered – for what? by whom? on what terms? – need to be in place
before it can be assessed by the offeree and by the court.”

4. Does Insolvency Rule 6.42 provide security?

JDC’s third ground of appeal was that the TCC had erred in law by holding that r.6.42 of the
Insolvency (England and Wales) Rules 2016 (“IR”) did not provide adequate security for
Erith’s costs. As this argument was not raised at first instance, the CoA was confident that
the same was not open to JDC on appeal. Nevertheless, it commented that whilst r.6.42(4)
prioritises expenses incurred by the liquidator in legal proceedings brought by the
liquidator over the costs and expenses of the liquidation, it did not follow that, if Erith
commenced its own proceedings against JDC and obtained a costs order in its favour, that
the liquidator would have to prioritise Erith’s costs. JDC’s third ground of appeal was
thereby dismissed.

5. Should a company in liquidation be entitled to summary judgment where crossclaims were

to be determined?

The CoA held even if the judge had erred regarding the adequacy of the security offered,
JDC would still not have been entitled to summary judgment whilst there was a crossclaim
of Erith’s to be finally determined.

Put simply, it is only appropriate to grant summary enforcement when the ‘net balance’
owed has been finally determined (not simply provisionally by an adjudicator).

6. Would a stay of execution have been granted?

Despite JDC’s failure to make its claim, the CoA briefly considered whether Erith would
have been entitled to a stay of execution had it succeeded. Having considered the relevant
authorities, the CoA concluded that whilst in the right case, provided adequate security had
been given, instead of a stay of execution a judgment sum could be paid out to the claimant
company, in the current case (and particularly considering the uncompromising stance
adopted by JDC) it would have granted a stay of execution for the whole sum in any event.

Analysis

The conduct of JDC in this case was described by the CoA as “how not to go about enforcing a
judgment on behalf of a company in liquidation when there is an extant cross-claim.” Learning from
JDC’s mistakes, therefore, any party in similar circumstances must ensure that it
provides clear and unequivocal security for both the sum of any potential crossclaims as well
as the costs of those proceedings.
This article contains information of general interest about current legal issues, but does not provide legal
advice. It is prepared for the general information of our clients and other interested parties. This article should
not be relied upon in any specific situation without appropriate legal advice. If you require legal advice on any
of the issues raised in this article, please contact one of our specialist construction lawyers.

To view this article in pdf format, please click here.

© Hawkswell Kilvington Limited 2021

https://beale-law.com/article/john-doyle-construction-ltd-v-erith-contractors-ltd-insolvency
-and-adjudication-continued/
JOHN DOYLE CONSTRUCTION LTD V ERITH CONTRACTORS LTD –
INSOLVENCY AND ADJUDICATION CONTINUED
October 2021
James Vernon and Daniela Miklova

The case of John Doyle Construction Ltd v Erith Contractors Ltd [2021] EWCA Civ 1452 (07 October
2021) saw the Court of Appeal re-explore the conflict between the adjudication process and insolvency
following the Supreme Court decision of Bresco Electrical Services Ltd v Michael J Lonsdale Ltd.

Last October, we followed the case of John Doyle Construction Limited v Erith Contractors
Ltd here, with the High Court declining to enforce the adjudicator’s decision due to the
applicant’s inadequate security offering for the Respondent’s cross-claims and the costs of
bringing any such claim. This decision came just 4 months after the Supreme Court case
of Bresco Electrical Services Ltd (“Bresco”) v Michael J Lonsdale (Electrical) Ltd, which held that
insolvent construction companies have jurisdiction to refer a dispute to adjudication. For a
summary of the Bresco case, please see our previous article here.

On 7 October 2021, the Court of Appeal dismissed the appeal of John Doyle Constriction
(“JDC”) Ltd, whilst taking the opportunity to clarify the burden that a claimant company in
liquidation faces when seeking to enforce an adjudicator’s decision.

The Appeal

JDC appealed the October 2020 High Court decision on the following grounds:

1. The Judge failed to consider JDC’s alternative security offer of their liquidators paying
the judgment sum by Erith Contractors Limited (“EC”) into either an escrow account
or into court.
2. The Judge erroneously concluded that the Deed of Indemnity would only be engaged
by the commencement of litigation by JDC, which made it inadequate security for
EC’s costs in any action that EC might commence for seeking repayment.
3. The Judge erred in law by deciding that Insolvency Rule 6.42 did not provide
adequate security for EC.

Before addressing the above grounds, the Court acknowledged that the process for a
summary judgment application had not been established with the intention for it to be
pursued by a company in liquidation. The Court stressed that a claimant company in
liquidation must endeavour to outline clearly the issues in contention to ensure an efficient
hearing, as the process is unsuitable for the complexities that arise from unclear cases.

JDC failed to produce “clear, evidenced and unequivocal” undertakings or securities when
required, as well as providing unnecessarily extensive witness statements as evidence. The
Court attributed these failings to JDC’s liquidators, who adopted an “unhelpfully aggressive
approach of enforcement” in their attempt to recover and use the money, instead of
focusing on ring-fencing the money or providing an adequate security to EC.
The Court of Appeal’s Judgment

Concerning the first ground, the Court of Appeal concluded that the liquidators had failed
to clearly and unequivocally present the offer that the Respondent should pay the sum
identified in the decision to an escrow account or into the court to serve as a necessary
security for EC’s set-off and counterclaim. The Court dismissed the Appellant’s argument
that the Judge had failed to consider this as an alternative in the first instance, as this “offer”
would have contradicted the existing agreement between the Appellant and their liquidators
that the monies paid by the Respondent would be paid to the liquidators and therefore could
not have been presented as a viable option.

In order for the second ground to succeed, the Court stated that JDC would have to present
a statement by an insurer that indicated they would be prepared to offer EC a Deed of
Indemnity in this particular case as security for any orders for EC’s costs that may be made
in proceedings in which they pursued JDC for payment. Although the Court agreed that it
was not for JDC to complete these arrangements, evidence of such a Deed of Indemnity
provided by an insurer was deemed by the Court to be an absolute minimum requirement.

The Appellant relied on Insolvency Rule 6.42 for the third ground, which provides the
following:

 Rule 6.42(1): all fees, costs and charges and other expenses incurred in the course of
the winding up are to be treated as expenses of the winding up.

However, Rule 6.42(4)(a) prioritises expenses incurred by the liquidator in legal proceedings
over the costs and expenses in the liquidation. Consequently, if EC commenced proceedings
for repayment and obtained cost orders against the liquidator in those proceedings, those
costs orders would not be prioritised at all. As a result, the Court dismissed Ground 3 on the
basis that Rule 6.42 did not apply.

A Company in Liquidation’s Entitlement to Enter Judgment

The Court of Appeal directly applied Lord Briggs’ observations in the Bresco judgment that
summary judgment to enforce an adjudicator’s decision will often be unavailable when the
claimant is in liquidation but it would also be refused where it would deprive the
Respondent of their right to have recourse to the insolvent company’s claim as security for
its cross claim.

Lord Briggs further submitted in Bresco that when the cross-claim can be determined by the
adjudicator, then summary enforcement would not be inappropriate because the claim and
cross-claim form part of the same dispute under the contract. However, the Court of Appeal
disagreed with this position on the basis that it failed to take into account that an
Adjudicator’s decision is provisional and therefore cannot be regarded as the final
determination of a net balance. The Court of Appeal concluded that an Adjudicator’s
provisional finding cannot be treated as a final determination of the net balance when the
other party maintains its set-off and cross claim, as the insolvency set-off must apply to
adjudication. Therefore, the Court of Appeal concluded that JDC would not have been
entitled to summary judgment in any event if any of the grounds of appeal had succeeded.
Comment

A year after the decision of Bresco, this appeal has clarified a few points concerning
insolvency and adjudication.

Firstly, a claimant company in liquidation must ensure that they take the necessary steps to
deliver an efficient hearing, which clearly presents their areas of dispute. Companies in
liquidation should be prepared for the Court to decide against the Applicant if they fail to
demonstrate to the Court a focused and well-structured approach to the summary
judgment application with viable alternatives.

Secondly, companies ought to remember that whilst this case reaffirmed that insolvent
companies may commence an adjudication for a dispute, it also serves as a reminder that
enforcement is only possible in limited circumstances as the Courts cannot exercise
discretion to disapply the Insolvency Rules. The Adjudicator’s award must represent a final
account of the dealings between the parties and, also, the insolvent party must be able to
provide adequate security for costs. The Adjudicator’s provisional finding, however, cannot
be treated as a final determination of the net balance when the opposing party maintains a
set-off and cross claim.
https://blog.charlesrussellspeechlys.com/post/102h85g/john-doyle-construction-in-the-cou
rt-of-appeal-enforcing-adjudication-is-all-a-m

10 月 8 日, 2021
John Doyle Construction in the Court of Appeal: enforcing adjudication is all a matter of
(net) balance for companies in liquidation...

Judgment was given by the Court of Appeal yesterday (7th October) in John Doyle
Construction Limited (In Liquidation) v Erith Contractors Limited. This important
case considered the relationship between adjudication and insolvency proceedings in the
context of applications to enforce an adjudicator's decision, and the security requirements for
a party in liquidation seeking to enforce a decision. The underlying contract between JDC
and Erith had related to hard landscaping works at the London Olympic park in Stratford.
JDC, as an insolvent company, had applied to the court to enforce an adjudicators decision in
their favour. At first instance last autumn, the matter was heard in the TCC by Fraser J who
found in favour of Erith and dismissed JDC’s application for summary judgment. This was
on the basis that JDC had provided inadequate security for both Erith's cross-claims and the
costs of bringing any such claim. JDC appealed on the following grounds:

1. The ringfencing or security offered by JDC in respect of the sum identified in the
decision;
2. The security offered by JDC in respect of future costs orders in Erith’s favour; and
3. The proper application of Insolvency Rule 6.42.

All three grounds of appeal were dismissed.

The Appeal Judgment

The appeal raised three fact-specific points arising out of the order of Fraser J, in the context
of a much wider and critically important question - is a company in liquidation entitled to enter
judgment on its claim arising out of an adjudicator’s decision, without regard to the paying party’s set-off and
counterclaim position? The Court of Appeal judgment on that broader question is strictly obiter,
but will be the main area of interest for commentators and the industry.
Lord Justice Coulson and Lord Justice Lewison both strongly supported the Fraser J first
instance decision in dismissing the appeal. They held that before an insolvent company can
enforce an adjudicator's decision in its favour, clear and unequivocal security for both the
decision sum and costs of final proceedings should be provided. It further considered that
payment into escrow or court by a Defendant was unlikely to be satisfactory security.
In his judgment, Lord Justice Coulson commented:

“…The grounds are narrow because the judge made detailed findings about the adequacy of the security offered
by the appellant (a company in liquidation), and it is seeking to argue, not that those conclusions were wrong,
but that there were alternative offers of security which the judge did not address in his judgment.”
JDC sought to rely on of the decision of Lord Briggs in the Supreme Court in Bresco Electrical
Services Limited (in liquidation) v Michael J Lonsdale (Electrical) Limited [2020] UKSC 25; [2021] 1
All ER 697 (“Bresco”). In Bresco the Supreme Court had made it clear that a company in
liquidation was entitled to commence and pursue an adjudication. This position had
contrasted with the position adopted by the TCC and Court of Appeal prior to Bresco, who
had both considered that adjudication should not be used by insolvent parties (and thus
supported injunctive relief against them if they attempted to do so etc).
Some commentators noted that the Supreme Court’s judgment in Bresco was given precisely
as the Covid19 pandemic threatened large numbers of insolvencies in the construction
industry, and, in that context, was seen as giving the armament of adjudication to insolvent
parties and their Liquidators to assist with their - often no doubt legitimate - construction
claims. (You may recall the UK Government note to our sector at the time to essentially
"ignore your contract terms and 'play fair' " etc).

Here however JDC submitted that the Bresco decision went even further than simply a right to
adjudicate, and extended the position such that a company in liquidation was entitled to
summary judgment to enforce the decision of an adjudicator (as opposed to simply commence an
adjudication) and that that entitlement existed regardless of the absence of a final
determination of any paying party's set-off and cross-claims.
The Court of Appeal found that JDC's position was untenable in this regard on the following
basis:

 JDC had sought to rewrite the Supreme Court’s decision in Bresco;

 The submission that there is an entitlement to summary judgment in these
circumstances is directly contrary to the binding principle in Bouygues UK Ltd v
Dahl-Jensen UK Ltd [2000] EWCA Civ 507 ("Bouygues"), which had been expressly
affirmed in Bresco; and
 The provisional finding of an adjudicator, even on a single final account dispute
where no other significant non-contractual or other contractual claims arise, cannot
be treated as if it were a final determination of the net balance, in circumstances
where the other party maintains its set-off and cross-claim.

Further, this final point was critical in that under both the Insolvency Rules and the House of
Lords case of Stein v Blake [1996] AC 243 (the leading case on bankruptcy set-off) a claim for
or against an insolvent party could only be for the net balance owed as between the parties
(i.e. where there are cross claims, insolvency set off applies, leaving only a claim for the
balance etc).

Commentary:
Enforcing an adjudication award where the claimant is insolvent poses a significant risk to the
other party who may be subsequently successful in a set-off and cross-claim. A significant
risk of paying a company in liquidation is that, in the absence of adequate ring-fencing, the
sum paid is open to be distributed. That would mean that potentially the sum enforced could
be distributed and then any set-off and cross-claim could not be fully paid by the liquidator.

Cognisant of this risk, in his judgment Lord Coulson set out the steps an insolvent claimant
would need to take to be able to enforce an award (my emphasis):

“If a claimant wants to summarily enforce the adjudicator’s decision, notwithstanding its own liquidation, it
needs to be unequivocal about any offer that it is making to ring-fence that money or
otherwise protect it. Where there is a dispute about the sufficiency of the undertakings or security on offer,
it must at least be beyond argument what has been offered and why…In the present case,
JDC failed to follow this simple course.”
It is worth noting that in the first instance hearing Fraser J had been rather critical of the
procedure adopted by the parties. It was not appropriate for the parties to benefit from an
accelerated procedure, intended to protect cash flow in construction companies, where the
company is insolvent, and the project was carried out years ago. Lord Justice Coulson
referred to the case of Bouygues in which, more than 20 years ago, the Court of Appeal had
made it clear that such claims could not be subject to summary enforcement at all. However,
the decision in Bresco may have somewhat modified that previously staunch position.
Here, in a material finding, the Court of Appeal held that the Supreme Court in Bresco has not
decided whether - even with sufficient security - a company in liquidation could enforce an
adjudicator’s decision, considering that this might not be permissible under insolvency law
generally and Rule 14.25 of the Insolvency Rules 2016 specifically.

So whilst the decision in Bresco may have been thought by some to pave the way for insolvent
companies to adjudicate with impunity, it is apparent from recent decisions, including this
one, that an insolvent claimant will still have to overcome significant hurdles before it is able
to enforce an adjudication award.

Is a company in liquidation entitled to enter judgment on its claim arising out of an

adjudicator’s decision, without regard to the paying party’s set-off and counterclaim? The
answer from the Court of Appeal is a sensible and resounding "No". The Court of Appeal
also considered that adjudication of such set-offs and counter-claims would not amount to a
final determination hence allowing enforcement.

This is a significant case, both on issues of security and in relation to the status of
adjudicator’s decisions in favour of companies in liquidation. As such, it will be of
interest to both construction and insolvency practitioners. If the decision is viewed
overall as "Adjudication v the Insolvency Rules" - at the enforcement stage at least -
it is a clear "One Nil" win to the Insolvency Rules.

Finally, the appeal judgement is notable for its other robust obiter comments from Lord
Justice Coulson in support of the entire adjudication infrastructure as it has developed in the
UK over the last 25 years (and indeed spread to many other jurisdictions since):

"I rather cavil at the suggestion that construction adjudication is somehow ‘just a part of ADR’. In my view,
that damns it with faint praise. In reality, it is the only system of compulsory dispute resolution of which I am
aware which requires a decision by a specialist professional within 28 days, backed up by a specialist court
enforcement scheme which (subject to jurisdiction and natural justice issues only) provides a judgment within
weeks thereafter. It is not an alternative to anything; for most construction disputes, it is
the only game in town."

There will be few who argue with that...

{
...there is considerable procedural flexibility in the conduct of a liquidation. The flexibility
should be used to ascertain the net balance (one way or the other). In my judgment, it is
only once the net balance has been ascertained, by whatever are the appropriate means,
that judgment should be entered.
 Neutral Citation Number: [2021] EWCA Civ 1452
Case No: A1/2020/1858

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT
(TECHNOLOGY AND CONSTRUCTION COURT)
Mr Justice Fraser
[2020] EWHC 2451 (TCC)

Royal Courts of Justice

Strand, London, WC2A 2LL
07/10/2021

Before:

LORD JUSTICE LEWISON

LORD JUSTICE COULSON
and
LORD JUSTICE EDIS
____________________

Between:

John Doyle Construction Limited

(In Liquidation) Appellant
- and -
Erith Contractors Limited Respondent

____________________

Adam Constable QC (instructed by Pinsent Masons LLP) for the Appellant

Riaz Hussain QC (instructed by DLA Piper UK LLP) for the Respondent

Hearing date : 15 July 2021

____________________

HTML VERSION OF JUDGMENT APPROVED

 ____________________

Crown Copyright ©

LORD JUSTICE COULSON :

1. INTRODUCTION

1. This appeal raises three fact-specific points arising out of the order of Fraser J ("the
judge") dated 9 October 2020, by which he dismissed the appellant's application for
summary judgment. The grounds are narrow because the judge made detailed findings
about the adequacy of the security offered by the appellant (a company in liquidation),
and it is seeking to argue, not that those conclusions were wrong, but that there were
alternative offers of security which the judge did not address in his judgment.

2. However, lurking in the shadows of this appeal is a wider point, as to whether a

company in liquidation, with an adjudication decision on its final account claim in its
favour, but facing a continuing set-off and counterclaim, is entitled to summary
judgment at all. That issue in part turns on a consideration of the decision of the
Supreme Court in Bresco Electrical Services Limited (in liquidation) v Michael J Lonsdale
(Electrical) Limited [2020] UKSC 25; [2021] 1 All ER 697 ("Bresco"). There, the Supreme
Court made it clear that a company in liquidation was entitled to commence and
pursue an adjudication, and that to do so was not a futile exercise. But the appellant
suggests that the Supreme Court went further and decided that a company in
liquidation was entitled to summary judgment to enforce the decision of an
adjudicator, regardless of the absence of a final determination of the other side's
set-off and cross-claim. That is a potentially important issue in the inter-related worlds
of construction law, insolvency and adjudication. Whilst I accept that, if the appeal
fails on the three stated grounds, whatever I say on the summary judgment issue
is obiter, it would, I think, be unhelpful for practitioners in those worlds to duck the
point altogether.

3. Accordingly, I set out in Section 2 the factual background, and in Section 3 some of
the relevant parts of the judge's judgment. I set out the three grounds of appeal in
Section 4. In Section 5, I identify the burden on a claimant (particularly a company in
liquidation) seeking summarily to enforce the decision of an adjudicator. I address the
three grounds of appeal in Sections 6, 7 and 8 respectively. In Section 9, I consider
the issue already noted: whether a company in liquidation in the circumstances of the
appellant is entitled to summary judgment. In Section 10, I address briefly a final
matter of principle, concerned with a possible stay of execution. I also note the
matters raised in the Respondent's Notice, on which there was no time for any
submissions at the appeal hearing.

4. I am very grateful to both leading counsel for the excellence of their written and oral
submissions. I should make it clear that, on behalf of the appellant, Mr Constable had
no involvement in this case until the appeal.

2. THE FACTUAL BACKGROUND

5. The appellant, John Doyle Construction Limited ("JDC"), was a construction
company which has been in liquidation since 2013. The respondent, Erith
Contractors Ltd ("Erith") remains in business as a construction company. There has
never been any issue as to its solvency.

6. The dispute between the parties is very stale. It dates back to a sub-contract ("the
Sub-Contract") between Erith and JDC for hard landscaping works at the Olympic
Park in East London. The work was part of the preparations for the 2012 Olympic
Games. The contractual hierarchy was this. BAM Nuttall Ltd ("BAM") was engaged
by the Olympic Development Authority as a Management Contractor in respect of
certain construction work for the northern part of the Olympic Park. Erith were
engaged by BAM to carry out some of that construction work, including the hard
landscaping works. In July 2010, Erith and JDC entered into the Sub-Contract,
pursuant to which Erith sub-contracted the hard landscaping and associated works to
JDC. The Sub-Contract included the NEC3 standard form (which included an
adjudication provision at clause W2), together with various standard additional clauses
and amendments.

7. On 21 June 2012, just before the completion of the Sub-Contract works, JDC entered
into administration and stopped work. A year later, on 13 June 2013, JDC entered
creditors' voluntary liquidation. Following JDC's cessation of work, Erith were
obliged to complete the Sub-Contract works themselves.

8. Thereafter a dispute arose as to the value of JDC's final account. For reasons which
are unclear, JDC's liquidators were unwilling to pursue any adjudication themselves
(despite the fact that any adjudication would have been cost-neutral). Eventually, in
2016, they looked to a company called Henderson & Jones Ltd ("HJ") to pursue the
claim. HJ are said to have expertise in dealing with contentious insolvency claims and
the ability to pursue recoveries from third parties. On its website, HJ describes itself
as a company who "purchases litigation and arbitration claims for immediate money and/or share
of the proceeds." The primary business model of HJ was further described by Mr
Henderson, a solicitor by profession, at paragraphs 6 and 7 of his witness statement:

"The primary business of HJ is to purchase legal claims from insolvent

companies…HJ provides a solution, by purchasing the claim from from the
Insolvency Practitioner and/or insolvent company and commencing
proceedings itself. The Insolvency Estate will receive a mixture of upfront cash
consideration and deferred consideration, calculated and paid by reference to
the eventual outcome."

9. On 8 December 2016, JDC's liquidators and HJ entered into a Deed of Assignment

("the Assignment Deed") in respect of the final account claim against Erith. It is, I
think, common ground that this did not create an effective legal assignment of JDC's
claims against Erith (as opposed to a possible equitable assignment), because the
bespoke NEC3 terms and conditions of the Sub-Contract contained a
non-assignment clause, and Erith refused to consent to the assignment.

10. It is unnecessary for present purposes to recite the terms of the Assignment Deed in
detail. The following points should, however, be noted (helpfully summarised by the
judge at [26] of his judgment):
 i) The Assignment Deed envisaged that it might not lead to an effective legal
assignment, and in those circumstances provided that the claims against Erith would
be held on trust for HJ "absolutely" (Clause 3.1);

ii) HJ paid JDC £6,500 for the assigned claims, with a further payment to JDC
dependent on the outcome of the assigned claims (Clause 4);

iii) HJ had conduct and control of any proceedings pursued in relation to the assigned
claims (Clause 8);

iv) Any sums recovered were to be paid to HJ; and

v) 45% of any net recovery in subsequent proceedings was to be paid out to JDC by
HJ. In this way, HJ would retain 55% of the net recovery.

11. On 22 January 2018, JDC commenced an adjudication against Erith for sums they
claimed to be due pursuant to its final account under the Sub-Contract. The claim was
for approximately £4 million. Erith denied the claim and submitted that, on a proper
analysis, JDC had already been paid more than £3 million too much. The adjudicator
also dealt with a relatively modest claim that Erith had against JDC in respect of a
claim under a separate contract. There were no other contractual or non-contractual
claims or cross-claims.

12. The adjudication took over 5 months. That itself may indicate that the claim may not
have been suitable for adjudication, given that the statutory adjudication process
requires a period of 28 days, with a maximum period - if extended by agreement - of
42 days[1]. By a decision dated 29 June 2018, the adjudicator decided in JDC's favour,
in the sum of approximately £1.2 million (interest and VAT inclusive) ("the
Decision"). Erith immediately challenged the Decision by way of a Notice of
Dissatisfaction.

13. The Decision of 29 June 2018 was not the subject matter of an enforcement hearing
for over two years. Unusually, there were a number of important events and delays
between the Decision and the commencement of the enforcement proceedings.

14. First, HJ and JDC's liquidators entered into a new Deed of Agreement ("the
Agreement Deed") on 13 December 2019. The terms of the Agreement Deed were
plainly intended to avoid the risk that, in any application to enforce the Decision, the
existing arrangements between the liquidators and HJ might be found to be
champertous and therefore unenforceable. That concern arose out of the decision of
the deputy judge in Meadowside Buildings Development Ltd (In liquidation) v 12-18 Hill Street
Management Co Ltd [2019] EWHC 2651 (TCC) ("Meadowside"). I return to that
authority in Section 9 below[2]. As part of his Respondent's Notice, Mr Hussain
maintains that the Deed of Agreement did not 'save' the arrangements between the
liquidators and HJ in the way that was intended.

15. A week later, on 20th December 2019, JDC'S solicitors wrote a letter before claim,
seeking the £1.2 million found due by the adjudicator. In the letter, they tacitly
recognised that there was a risk to Erith that, if they paid the sum identified in the
Decision to a company in liquidation, the money would be distributed, and there
 would be little or nothing to be recovered if it was later to transpire that the
adjudicator had been wrong and that Erith had overpaid. But their offer of security
was in unusual form, by way of a letter of credit and an ATE insurance policy. This
offer assumed that the sum found due by the adjudicator would be paid out by Erith
to JDC's liquidators (and therefore, in consequence of the express terms of the
Assignment Deed, to HJ). There was further inter-solicitor correspondence on the
subject of security, which generated considerable heat but little light. I refer to the
most significant elements of that correspondence in Sections 7 and 8 below, when
dealing with the relevant grounds of appeal.

16. JDC did not issue a claim form until 9 April 2020. They sought to enforce the
Decision by way of summary judgment. The claim form, the particulars of claim, and
the application for summary judgment all sought judgment in the sum of £1.2 million
odd. There was no qualification or reference to the provision by JDC of any sort of
security, much less an undertaking (either by the liquidators or by HJ) that the sum
claimed would in any way be "ring-fenced" following judgment.

17. The hearing of the contested summary judgment application was originally set down
for 17 June 2020. Because the Supreme Court were about to hand down their
judgments in Bresco, that hearing was postponed until 2nd July 2020, in order that both
parties could take account of the Supreme Court's conclusions. For that hearing, the
judge was provided with copious witness statements and detailed correspondence, a
number of authorities, and lengthy written submissions. After the hearing, the judge
raised a simple question about the previous Court of Appeal decision in Bouygues (UK)
Ltd v Dahl-Jensen (UK) Ltd [2000] BLR 522 ("Bouygues"), which generated a further
lengthy submission from JDC.

18. On 14th September 2020, the judge handed down his judgment, refusing to grant
summary judgment in favour of JDC. He circulated an order to that effect on
9th October 2020. On the same day, JDC filed an appellant's notice with the Court of
Appeal. On 10th December 2020, I granted permission to appeal and estimated that
the hearing would last one day. Erith served a Respondent's Notice on 23 December
2020 which raised other issues as to whether the proceedings were an abuse of
process and/or whether the arrangements between JDC and HJ failed to comply with
the Damages Based Agreement Regulations 2013. The parties did not revisit the time
estimate to reflect these points. So when the hearing took place on 15 July 2021, the
issues raised by the appeal itself took the full day that I had estimated, leaving no time
to deal with the issues raised in the Respondent's Notice.

3. THE JUDGMENT

19. By reason of the range and scale of the evidence, the length of the skeleton arguments,
and the matters which counsel raised orally at the hearing, the judgment ran to 147
paragraphs ([2020] EWHC 2451 (TCC)). Some parts of the judgment were concerned
with the process and procedure which the TCC has created for adjudication
enforcement, and how and why this claim (and possibly others involving claimant
companies in liquidation) was not appropriate for that process. I have more to say
about the burden on a claimant in adjudication enforcement, and the appellant's
purported discharge of that burden in this case, in Section 5 below.
20. Another difficulty for the judge was that, because the decision in Bresco was only
handed down by the Supreme Court on 17 June 2020, he was inevitably feeling his
way through the consequences of the significant change in practice
that Bresco heralded, and how that played out in the application before him. This may
have led to a longer judgment than the judge would have liked, but it cannot be said
that the judge did not properly answer all the important points of detail which had
been addressed to him.

21. Starting at [86], the judge focused on the mechanisms of security offered by JDC or
HJ. He dealt first with the security for the sum of £1.2 million odd which was being
sought by way of summary judgment. He noted at [86] that no undertakings or
security had been offered by JDC's liquidators, and that the security that was offered
came only from HJ. He considered that security, being the letter of credit and an ATE
insurance policy, in detail; between paragraphs [86] and [102], he carefully analysed
the sufficiency of that security and explained how and why it was inadequate. No
issue is taken on this appeal with that analysis and reasoning.

22. The second issue for the judge concerned whether or not adequate security had been
offered for any costs orders in Erith's favour in the future if, having paid over the
sum found due by the adjudicator, they made a claim for repayment based on their
own set-off and counterclaim. The security was in the form of another ATE
insurance policy. There was also a reference to a template Deed of Indemnity which
was said to deal with the exclusions in the policy to which Erith had objected. The
judge addressed the adequacy of this offered security at [103]-[119], and again found
that it was inadequate. No issue appears to be taken with the judge's analysis and
reasoning insofar as it relates to the ATE insurance policy; the complaint is about the
judge's short criticism of the template Deed.

23. By reason of the inadequacies in the security offered, the judge concluded that
summary judgment should not be granted to JDC. However, in case he was wrong
about that, he went on to consider whether, if judgment was entered, a stay of
execution should be granted in any event. For the reasons set out at [121]-[133] of the
judgment, the judge concluded that, even if the appellant had been entitled to
summary judgment, he would have granted a stay of execution in any event.

4. THE THREE GROUNDS OF APPEAL

24. Ground 1 concerns the security to be provided by or on behalf of JDC if Erith were
required to pay out the sum of £1.2 million to a company in liquidation. As I have
said, no issue is taken with the judge's finding that the security offered by HJ was
inadequate. However, JDC submit that the judge should have found, not only that the
liquidators had themselves offered security, but that the security which they had
offered, being the payment of the judgment sum by Erith into an escrow account or
into court, was adequate. This potential 'offer' was not addressed by the judge in his
judgment. Erith say that that was because it was not the basis on which security was
argued by JDC at any stage before the judge.

25. Ground 2 concerns whether, assuming Erith had paid out the sum identified in the
Decision, they had been offered adequate security for any costs orders in their favour
if they subsequently commenced proceedings to recover that amount or more, based
 on what they said was the proper valuation of JDC's final account. The appeal on this
ground is primarily based on the argument that the judge erred in concluding that the
Deed of Indemnity would only be engaged upon the commencement of litigation by
JDC, and was therefore inadequate as security for Erith's costs in any action which
Erith itself commenced seeking repayment. JDC's argument is that there were side
letters which provided sufficient assurance that the Deed of Indemnity would be
engaged if proceedings were commenced by Erith. Erith notes that there is no
challenge to the judge's conclusions as to the inadequacy of the ATE insurance policy
itself, and maintains that the Deed of Indemnity did not constitute an offer of security
at all.

26. Ground 3 also goes to the issue of security for Erith's costs in any future action. It is
an argument to the effect that, even if the ATE insurance policy and/or Deed of
Indemnity did not of themselves constitute adequate security for those costs, the
judge erred in law in holding that Insolvency Rule 6.42 did not provide adequate
security for Erith (such that the security actually offered did not matter). Erith submit
that this argument was never advanced to the judge, so cannot legitimately arise on
appeal, and that in any event the argument is unsound in law.

27. Thus, in relation to each of these grounds of appeal, there is an issue as to what was
and what was not argued before the judge. It is therefore necessary to say a word or
two at the outset about the burden on a claimant – particularly a company in
liquidation - in an adjudication enforcement application.

5. BURDEN ON A CLAIMANT IN AN APPLICATION TO ENFORCE

THE DECISION OF AN ADJUDICATOR

28. Any application summarily to enforce the decision of an adjudicator in the TCC is
subject to a bespoke and streamlined service. The claim form should be in simple
terms, identifying the adjudicator's decision which is the basis of the claim. The
application for summary judgment will be supported by a short witness statement,
attaching the agreement to adjudicate and the decision. If it is clear from the
pre-action correspondence that a particular point is being taken by the defendant in
answer to the application, it is usually no bad thing for that issue to be addressed
upfront in the witness statement. Time for acknowledgement of service is usually
abridged, and the Court will make directions leading to a hearing of the summary
judgment application within 28 days of the commencement of the proceedings.

29. This process evolved in order to ensure that the speedy adjudication process created
by the Housing Grants (Construction and Regeneration) Act 1996 was not derailed by
delays in the subsequent enforcement of the adjudicator's decision. Although it has
come at some cost to other court users in the TCC (because they can sometimes be
bumped down the queue for interim appointments in order to prioritise adjudication
enforcement hearings), it has generally been regarded as a great success. It is one of
the reasons why, speaking personally, I rather cavil at the suggestion that construction
adjudication is somehow 'just a part of ADR'. In my view, that damns it with faint
praise. In reality, it is the only system of compulsory dispute resolution of which I am
aware which requires a decision by a specialist professional within 28 days, backed up
by a specialist court enforcement scheme which (subject to jurisdiction and natural
 justice issues only) provides a judgment within weeks thereafter. It is not an
alternative to anything; for most construction disputes, it is the only game in town.

30. A company in liquidation such as JDC, which has purported to assign its stale
construction claim to a third party, is not perhaps the sort of court user that the TCC
had in mind when it created this procedure, particularly because in Bouygues, decided
over 20 years ago, the Court of Appeal had made it plain that such claims could not
be the subject of summary enforcement at all. Even if the decision in Bresco has
modified that underlying position[3], this case has illustrated that such enforcement
claims, unless clearly thought through at the outset, can have their own complexities
which are perhaps unsuited to the streamlined process.

31. In any event, it is important that a claimant company in liquidation, seeking

summarily to enforce an adjudicator's decision, should take all necessary steps to
ensure that the hearing itself is as efficient as possible, and that it is clear to everyone
what issues the judge is being asked to decide. Bresco stated that the potentially
complex issues that can arise between the parties where the claimant is in liquidation
were for the judge to sort out at the enforcement stage: as this case again shows, that
burden is not to be underestimated. The least the claimant can do is to make its own
position crystal clear.

32. In particular, any undertakings or security being offered by a claimant company in

liquidation need to be clear, evidenced and unequivocal. It is not for the judge to
point out during the hearing potential inadequacies with the security offered, in order
to give the claimant an opportunity to amend its offer on the hoof in the hope of
making it more acceptable. Neither is it for the judge to endeavour to turn vague
suggestions by counsel, in the cut and thrust of oral argument, into a potentially
binding agreement between the parties, or to try and tease out of the material before
the court whether some other offer could or might have been made instead and, if so,
what its hypothetical consequences might be. Such an approach gives rise to
confusion and potential injustice. If a claimant wants to summarily enforce the
adjudicator's decision, notwithstanding its own liquidation, it needs to be unequivocal
about any offer that it is making to ring-fence that money or otherwise protect it.
Where there is a dispute about the sufficiency of the undertakings or security on offer,
it must at least be beyond argument what has been offered and why.

33. In the present case, JDC failed to follow this simple course. Their evidence was
unnecessarily extensive, relying on four witness statements from three different
people, all of which also exhibited numerous documents. Mr Henderson's first
witness statement alone ran to 27 pages and 123 paragraphs, and exhibited a raft of
documents. The skeleton argument produced on behalf of JDC for the hearing was
50 pages long. The hearing lasted the best part of a day and the transcript of the
proceedings is 66 pages in length. JDC's written and oral submissions was
'supplemented' by 12 pages of post-hearing submissions, most of which strayed well
beyond the short point on which the judge wanted an answer. It would hardly be
surprising if, out of this morass, it was not always precisely clear, either to Erith or the
judge, what it was that JDC/HJ were actually offering, or on what basis.

34. Many of these difficulties were the direct result of what I consider to be the
unhelpfully aggressive approach to enforcement adopted by JDC's liquidators and HJ.
 HJ wanted to recover and have the use of the money identified in the Decision, and
were much less concerned about any question of ring-fencing that money or
providing security to Erith. Thus the claim documents, and the application for
summary judgment, made no mention of undertakings or even the provision of
security, and even the inter-solicitor correspondence (which did talk about the latter
possibility) was premised on the assumption that the money would be paid out by
Erith to HJ (via JDC). As a result of this stance, there was never any offer by JDC's
liquidators of a simple and straightforward undertaking to provide sufficient
ring-fencing of the money in issue.

35. In addition, in the undergrowth of inter-solicitor correspondence, JDC sometimes

hinted at alternatives, offering a grudging concession on one point, but replacing it
with a new requirement, gradually reducing the aggression of its stance, without giving
it up altogether. This too gave rise to inappropriate levels of complexity and
confusion.

36. In my view, this flawed approach is the principal reason why this case is where it is. It
explains JDC's failure before the judge. It has prevented the early determination of
this case on the merits, by way of a trial of the issues raised by the final account
dispute which, but for the failed attempt to obtain summary judgment, would have
been concluded by now[4]. In addition it has meant that, on this appeal, JDC has been
obliged to scrabble about in the bundles and transcripts, trying to demonstrate that
there was some form of secondary or tertiary offer of security which, although never
clearly articulated to the judge, and clearly contrary to their basic demand that the
money be paid over to HJ for HJ's use, should somehow have been separately
addressed in the judgment.

6. GROUND 1: THE RINGFENCING OR SECURITY OFFERED BY JDC

IN RESPECT OF THE SUM IDENTIFIED IN THE DECISION

37. In his judgment, the judge said that the security offered by JDC in respect of the sum
identified in the Decision comprised a letter of credit and the ATE insurance policy.
As noted above, he carefully analysed the nature and adequacy of that security and
found it wanting. There is no suggestion that the judge's analysis of the adequacy of
the letter of credit and ATE insurance policy was in any way deficient.

38. Unusually, the complaint is that the judge did not address what is now said to be an
alternative offer of security, namely the liquidators' 'offer' that Erith should pay the
amount identified in the Decision into an escrow account, alternatively that they
should pay that sum into court. I note that ground 1 of the appeal goes so far as to
say that the judge's finding that the liquidators made no such offer was "a finding of
fact which no reasonable judge could have reached". In his oral submissions, Mr
Constable rowed back considerably from this assertion, accepting expressly that JDC's
counsel failed to make the position clear to the judge and that it was this "confusion"
which led to the error. Despite that rather more emollient approach, for the reasons
set out below, I consider that any criticism of the judge in this respect is entirely
misplaced.

39. The starting point, as advertised in Section 5 above, is straightforward: Did the
liquidators of JDC make a clear and unequivocal offer that Erith should pay the sum
 identified in the Decision into an escrow account or into court, which would then
serve as the necessary security for Erith's set-off and counterclaim? Was that an offer
the adequacy of which the judge had to determine? In my view, the answers to both
those questions is in the negative.

40. That it was the letter of credit and the ATE insurance policy – and nothing else - that
comprised the proffered security can be seen in numerous places. In the statement of
Mr Joyce, JDC's solicitor, at paragraphs 4.3.8-4.3.10 he said expressly that the security
being offered to Erith was the ATE insurance policy and the letter of credit. Those
were being arranged by HJ. Mr Joyce made no mention whatever of the possibility of
any payment into an escrow account or into court, nor of any offer of any kind by the
liquidators of JDC.

41. The evidence shows that this was not inadvertence on the part of Mr Joyce. It was
consistent with JDC's solicitors' letters of 8 November 2019 and 14 February 2020.
The security was being proffered by HJ and it assumed payment out by Erith of the
sum identified in the Decision. As Mr Henderson's first statement made plain at
paragraphs 69 – 70, repeated again at paragraph 107(b), this was because any sums
paid out by Erith would actually be received by HJ. As counsel then instructed put it
to the judge at the hearing: "if you give judgment, and money is transferred to JDC,
then they have a legal obligation to pay the money to HJ".

42. That was the underlying premise which permeated all of the evidence before the judge:
that on enforcement, monies would be paid out by Erith to HJ (via JDC), so that HJ
would have the use of that money. In his second statement, at paragraph 40, Mr
Henderson went so far as to say that what happened to any money once it had been
paid over by Erith was not a matter that the court needed to trouble itself about. In
my judgment, that was about as far removed from the ring-fencing undertaking from
the liquidators that commended itself to the deputy judge in Meadowside as it is
possible to get.

43. It is now suggested by Mr Constable that JDC had a secondary or tertiary case to the
effect that the liquidators had offered by way of security, either that Erith or JDC (it
was unclear which) would pay the sum found due by the adjudicator into an escrow
account, or that Erith could pay the sum into court. The complaint is that the judge
failed to deal with this alternative offer, which amounted to adequate security. I reject
that submission for reasons of both principle and fact.

44. First, as to principle, I consider that what was required beyond all else was what the
deputy judge in Meadowside described as "the liquidator undertaking to the court to
ring-fence the sum enforced so that it is not available for distribution". That
undertaking would address head-on the most obvious risk in paying money to a
company in liquidation: that you pay the money out to the liquidator; he or she
distributes it; but then, if your set-off and cross-claim is subsequently successful, the
liquidator can only repay you at 2p in the pound because there are no meaningful
assets. There was no undertaking from JDC's liquidators in this case which removed
that risk, as confirmed by counsel then instructed by JDC to the judge at the hearing.

45. Secondly, on the particular facts of this case, an offer as to payment into an escrow
account or into court could not have been made by the liquidators, because it would
 have contradicted the agreement between JDC and HJ which, as Mr Henderson
explained, meant that "monies paid by Erith will be paid to HJ". In other words, as
between JDC and HJ, there was no scope for any arrangement other than a
mechanism which saw the sum identified in the Decision paid out by Erith to HJ. The
evidence before the judge made it plain that HJ wanted nothing less (the aggressive
approach which I have deprecated above). JDC were not therefore able to offer
anything else. The so-called secondary or tertiary offers would have been inconsistent
with that approach.

46. Thirdly, on a proper analysis, I am confident that no such offer was actually made.
Dealing first with the alleged offer that payment could be made into an escrow
account, Mr Constable suggested that this offer was made: i) at paragraph 107c) of Mr
Henderson's first witness statement; ii) at paragraphs 144-147 of JDC's skeleton
argument dated 29 June 2020; and iii) in oral submissions at the hearing. On analysis,
none of those suggestions stands up to scrutiny.

47. Taking the first paragraph 107c) of Mr Henderson's first statement, he was there
addressing one of the many aspects of the proffered letter of credit which Mr Shaw,
Erith's solicitor, had been troubled about, namely that the letter of credit would expire
180 days from the date of the letter. Mr Shaw said that this gave Erith too short a
time in which to decide whether or not to issue their own proceedings. In that
context, Mr Henderson said:

"107c) In relation to paragraph 53 of his witness statement, Mr Shaw

raises an issue with the deadline of 180 days specified in Lloyd's letter of
27 March 2020. The concern, as I understand it, is that this may not be
sufficient if Erith were to appeal the Court's decision. It is not clear on
what basis Erith would make such an appeal, and, on that basis, Erith's
complaint is thoroughly speculative. None the less, I would suggest that:
i) The 180 day deadline is sufficient;
ii) In the alternative, HJ would be willing to undertake to keep the
monies in a separate account with Lloyds pending any appeal and to
immediately return the monies to Erith in the event of a successful
appeal (and as per the outcome of the appeal)."

48. In my view, this was plainly not an unequivocal offer that Erith could pay the sum
identified in the Decision into an escrow account. Escrow is not mentioned. Neither
is it suggested that the relevant payment into the account would be made by Erith. At
most (assuming that the court was unattracted by Mr Henderson's many other
arguments crammed into just that one sub-paragraph), it appeared to be a suggestion
that, once the money had been paid over by Erith to HJ, HJ could pay it into a
separate account with Lloyds pending the outcome of any appeal. That was
time-limited and specifically in HJ's gift. It was not an unqualified offer of security
and it certainly did not come from the liquidators.

49. That analysis also addresses the second way in which Mr Constable sought to suggest
that this offer had been made, because it was this evidence which was the subject of
paragraphs 145-147 of the skeleton argument provided by JDC for the enforcement
hearing. Those paragraphs can only fairly be read as a simple repeat of the offer at
paragraph 107c) of Mr Henderson's statement, set out above. Paragraph 147 expressly
 refers back to that evidence. The skeleton was doing no more than repeating the point
about the offer to ameliorate the suggested 180 days.

50. Furthermore, the passage in the skeleton refers to "the sums paid over [being] paid
into an escrow account". That is wrong in fact, because there is no mention of an
escrow account in Mr Henderson's statement. But the passage in the skeleton makes
clear that the alleged offer presupposed that the judgment sum would be paid over by
Erith to HJ (via JDC), and that it would be HJ who would then put the money into an
account at Lloyds (presumably under their control). Again, that was not an offer by
JDC's liquidators that adequate security would or could be provided by the payment
by Erith of the sum identified in the Decision into an escrow account.

51. That leaves the oral submissions. Mr Hussain made the fair point that something has
gone very wrong if an argument about whether adequate security was in fact offered
turns, not on the written offers or the lengthy written submissions, but on a forensic
analysis of oral submissions, many of which consisted of extended question and
answer sessions with the judge. This court should not have to embark on a semantic
analysis of the transcript looking for other offers of security that might have been
made orally, even if they were unevidenced and unheralded elsewhere.

52. In any event, I do not consider that the alleged offer was made by way of oral
submissions either. The relevant passages are between pages 45 and 50 of the
transcript. Counsel then instructed on behalf of JDC was referring to Meadowside and
the reference to "the liquidator undertaking to the Court to ring fence the sum
enforced so that it is not available for distribution for the relevant duration". She
acknowledged that there was no such undertaking here. There was then a reference to
funds being "held in escrow". But the exchanges with the judge then moved on to
address that possibility in the specific context of Erith's possible insolvency.

53. The first point to make is that this exchange, on which such reliance is now placed,
was, as the judge described it at page 48A of the transcript, "a hypothetical
exploration by me of what 'undertaking to ring fence the sum' means". Counsel then
instructed by JDC agreed. This was not, therefore, the actual making of an offer by
JDC. It was instead a hypothetical examination of what might constitute such an
undertaking. The reference to Erith's potential insolvency was also hypothetical: there
was never any suggestion that Erith was insolvent, which counsel also acknowledged.

54. In his closing submissions to the judge on behalf of Erith, Mr Hussain emphasised
that "no undertakings had ever been offered". That was correct. He also pointed out
that there was no suggestion of Erith's insolvency. That too was correct. There was
no other 'offer' of security (beyond the letter of credit and the ATE insurance policy)
which he therefore addressed (or was required to address) in his submissions.

55. Considering the written material and the transcript of the hearing in the round, the
judge cannot be criticised for not considering an alleged offer of security comprising a
payment by Erith of the sum claimed into an escrow account. On the contrary, I
conclude that no such offer was made, either in the run-up to the hearing, or at the
hearing itself.
56. I can deal much more shortly with the suggestion that it was part of JDC's case that
the sum identified in the Decision could simply be paid by Erith into court. I am in
no doubt that this was never part of JDC's case. First, it would have been contrary to
the liquidators' obligation to do all they could to ensure that the sums paid out by
Erith went to HJ. Secondly, there was no reference to a payment into court in any of
the evidence provided by either party; neither was it ever a suggestion made in the 50
pages of JDC's written submissions. There was one fleeting oral reference to it at page
50A of the typescript but that seemed to be a reference back to something that the
judge himself had said during his consideration of the hypothetical situation
(paragraph 53 above) and no further reference was made to it. The judge cannot be
criticised for not considering it further.

57. There is a wider point too, which is whether a payment into court is in principle a
proper way in which security could be provided by the defendant, in the
circumstances of an adjudicator's Decision in favour of a claimant company in
liquidation. I can see that, in theory, it might be. But it is not a mechanism that has
ever been suggested, and therefore considered, in any of the authorities. It was not
identified in Wimbledon Construction Co 2000 Ltd v Vago [2005] EWHC 1086
(TCC); 101 Con LR 99, which summarised the various options on adjudication
enforcement where there is a concern about the claimant's financial position. It was
not considered in detail in Meadowside; although it is referred to in passing at [137],
that appears to be a reference to a claiming party providing security for the
defendant's costs by making a payment into court, which is a different thing. If a
payment into court of the sum due had been regarded as a proper way in which a
defendant could obtain security for its own set-off and cross-claim against the
insolvent claimant, it is surprising that the possibility was not raised in either case.

58. Furthermore, I cannot help but feel that an order requiring payment of such monies
into court is the worst of all possible worlds. It is contrary to the underlying
philosophy of construction adjudication because, instead of maintaining construction
industry cash flow, it would deprive Erith – a working contractor - of cash, whilst
leaving the money sitting uselessly in the court's account. It would not be available for
distribution by the liquidators of JDC, so it is difficult to see how it is of any benefit
to them. It would sit there accruing minimal interest until, presumably, the underlying
claims and cross-claims had been the subject of a final determination. It would then
either be paid back to Erith (if they were successful) or paid out to JDC (if they were
successful), but since there is no issue as to Erith's solvency, such payment out to
JDC would have happened anyway. Thus, if it is a proper method of security (about
which I express no concluded view), it seems to me that it should be regarded as very
much a last resort[5].

59. In all those circumstances, therefore, the judge was entitled to conclude that the
security offered by JDC was the letter of credit and the ATE insurance policy. That
form of security was consistent with JDC's primary aim, which was to obtain payment
out of the sum identified in the Decision so that it could be paid on to HJ. There was
nothing which could have led the judge to conclude that, as a viable alternative, JDC
were suggesting that HJ would not get the money after all, and that they were happy
for it to be paid either into an escrow account or into court.
60. Furthermore, I consider that two subsequent events confirm that conclusion. The
first occasion was when the judge circulated his draft judgment. If JDC's argument on
ground 1 had been right, they would have been surprised that (on their case) the judge
had acted as no reasonable judge could have done, and not dealt with what they now
say was the liquidators' alternative offer of security. At the very least, it would have
been something that they felt he had overlooked. In such circumstances, they would
have been duty bound to raise that oversight with the judge. They did not do so. They
failed even to seek his permission to appeal on the point. That only confirms my view
that, on a proper analysis, this 'offer' was never part of JDC's case.

61. The second, and even more significant event, occurred some weeks after the
judgment was handed down. In yet more inter-solicitor correspondence, JDC's
solicitors made another offer which expressly identified payment by Erith into court
or into an escrow account. The first relevant letter, dated 2 October 2020, said that
"JDC has revised its security arrangements" and stated – for the first time – that "the
liquidators of JDC have agreed to provide an undertaking that any sums paid
pursuant to the adjudication decision are to be ring-fenced" and that "any sums paid
pursuant to the adjudication decision will be paid into court (as foreshadowed by
Fraser J during the hearing) or into an escrow account".

62. This offer was said expressly to be "a revised offer", with the clear implication that it
had not been made before. In my view, JDC's solicitors were now attempting to offer
what they had not offered before, prompted perhaps by the judge's exploration of the
hypothetical position at the hearing. Subsequently, it was also confirmed that the
money would not be payable to HJ. The solicitors' letter of 11 November 2020 set
out what were called "Revised security arrangements" and Clause 4.2 of the revised
offer made clear that "HJ agrees that it shall assert no right to any monies paid to JDC
that are held pursuant to the ring-fencing agreement or paid into Court or escrow".

63. It appears from those letters that JDC's solicitors accepted that this revised offer had
not been made at the time of the hearing before the judge, and therefore did not fall
to be considered by him. I am in no doubt that it was new. The revised offer was not
something which had arisen before the judge, so it cannot legitimately arise on an
appeal against his order.

64. Accordingly, for all these reasons, if my lords agree, ground 1 of this appeal must fail.

7. GROUND 2: THE SECURITY OFFERED BY JDC IN RESPECT OF

FUTURE COSTS ORDERS IN ERITH'S FAVOUR

65. The second category of security that was relevant to the application before the judge
was the security to be provided by JDC for any costs that Erith might be awarded if
or when they pursued their own set-off and cross-claim. It was said that sufficient
security for those costs was provided by another ATE insurance policy in the name of
'Thomas Miller Legal' of 90, Fenchurch Street, London EC3M 4ST. That was the
offer made in the inter-solicitor correspondence, and evidenced in the witness
statements.

66. In the judgment at [103]-[109] and [111]-[114], the judge explained the various
reasons why this ATE policy was insufficient. It was not entirely clear if JDC disputed
 the judge's conclusions in relation to this ATE policy: they did not seem to, because
Mr Constable's submissions were all concerned with the separate Deed of Indemnity,
which I address below. For the avoidance of doubt, however, I should make clear that
I consider the judge's criticisms of the exclusions/limitations in the ATE policy to be
well-founded. On its proper construction, the policy did not provide adequate security
for Erith's costs. That leaves the Deed of Indemnity.

67. At paragraph 121 of his first witness statement, Mr Henderson suggested that there
was a possibility[6] of a Deed of Indemnity instead of or in conjunction with the ATE
policy, although such a Deed would require a cross-undertaking in damages by Erith.
It was not couched as a firm offer: the highest that he put it was that he would make
enquiries about the possibility of providing a Deed.

68. On 24 June 2020, shortly before the hearing before the judge, JDC's solicitors wrote
enclosing the updated ATE policy. They also said in their letter:

"In response to paragraph 7.3 of Mr Shaw's second witness statement, we

enclose this standard form wording of the bond ('Deed of Indemnity') which is
to be provided by the insurers named in the ATE policy. Each insurer will
issue a Deed of Indemnity for their share of the risk, as they are underwriting
the risk on a several liability basis…in line with the submission set out in the
Claimant's skeleton argument served prior to the original hearing date, if a
Bond is to be put in place, the costs of the same should be met by a
cross-undertaking in damages from [Erith], in line with recent authorities".

The template Deed of Indemnity was enclosed with the letter.

69. The Deed of Indemnity was not otherwise referred to in the evidence. The judge dealt
with it shortly. He said at [110]:

110. "Reliance is also placed by JDC on what is said to be a "standing offer" to

provide a Deed of Indemnity or Bond. However, that "standing offer" is part
of the ATE Policy, and is offered by the Insurer, TM Legal, as defined in the
policy "to meet a security for costs order" (emphasis added). The dispute
defined in the Schedule states "the claim will be brought either by John Doyle
Company Ltd (acting by its liquidators) or Henderson & Jones Ltd as assignee
(as beneficiary under a trust)". It is not something outside of, or additional to,
the ATE Policy, but in any event it would be available if an action were
commenced by JDC and a security for costs order was made against it. JDC
might not commence such proceedings; indeed, if this summary judgment
application is successful, it is difficult to envisage circumstances in which JDC
would choose to do so. The Deed of Indemnity would not, on the face of it,
provide security in respect of a costs order made in proceedings commenced
by Erith against JDC, which is a rather different scenario, and the more likely
way that subsequent proceedings would unfold."

70. Ground 2 of JDC's appeal is based on the proposition that the Deed of Indemnity
was offered to Erith and that it was sufficient for the purposes of security. Mr
Constable accepted that, if one looked just at the Deed, the judge had been right to
say that it related only to security for JDC's costs in a claim against Erith, and not the
 other way round. But he argued that the judge failed to have regard to an email from
Thomas Miller which indicated to Mr Henderson that "'Dispute' [as defined in the
Deed] also includes any claim brought by Erith against John Doyle Construction". Mr
Constable accepted that this email had not been brought to the judge's attention at
the hearing.

71. In my view, that email was not an answer, either to the specific point raised by the
judge, or the wider concern about the template that Mr Hussain articulated on behalf
of Erith. As to the specific issue, the evidence about the email was vague. It was not
clear precisely who Thomas Miller were, and who they were acting for. It was not
clear how an exchange of emails between their representative and Mr Henderson of
HJ could be relied on in law by Erith against any insurer actually providing this
indemnity. Moreover, the point made by the judge simply highlighted that the whole
structure of the template Deed was the wrong way round: this was a conventional
arrangement to cover JDC if they were ordered to provide security for costs when
bringing a claim against a defendant; it was not the particular security arrangement
required to protect Erith against costs orders in their favour in their own proceedings
against JDC. That mismatch also explained why a cross-undertaking in damages was
sought, something that was again wholly inappropriate for this specific situation.

72. But in my view, there was a wider and insurmountable difficulty with the template
Deed of Indemnity. What was missing from the evidence was any statement by any
insurer that they were prepared to offer Erith this Deed in this case, as security for any
orders for Erith's costs that may be made in proceedings in which they pursued JDC
for repayment. For reasons which are not explained, the template is in the name of a
firm of insurers (Hamilton Insurance DAC) who it was expressly said would not be
providing the indemnity. No other potential insurer was identified. Whilst I agree with
Mr Constable that it was not for JDC to complete such arrangements with insurers,
much less pay a large premium to do so, there did need to be evidence that this Deed
of Indemnity in this particular form, relied on as a critical element of the security
offered, would be provided by reputable insurer(s) to Erith to meet the facts of this
case. There was no such evidence here. In my view, that was sufficient reason alone to
reject the Deed of Indemnity as adequate security.

73. In his oral submissions to the judge, Mr Hussain made all these points (no identified
insurer, no actual offer, cross-undertakings sought etc) to the judge: see pages 61-63
of the transcript. In response, all that was said was that, if the judge thought that the
Deed was appropriate in principle, then judgement should be entered, with
enforcement stayed whilst an insurer was found.

74. In my view, that was not an appropriate approach to a summary judgment application.
Once more, the real problem with JDC's position can be traced back to their desire to
take as much as they could on enforcement whilst giving as little as possible. Their
primary position was an inadequate ATE Policy. Their secondary position was a Deed
that incorrectly required cross-undertakings in damages from Erith. And their tertiary
position was that, if it had to be the Deed without the cross-undertakings, then they
needed more time to get an actual offer and put the necessary arrangements in place[7].
In my view, that is how not to go about enforcing a judgment on behalf of a company
in liquidation when there is an extant cross-claim. The building blocks of any security
being offered – for what? by whom? on what terms? – need to be in place before it
 can be assessed by the offeree and by the court. That is not, as Mr Constable put it,
just a question of "ironing out details": it is much more fundamental than that. Offers
of security should not be allowed to degenerate into an extended game of
'whack-a-mole'.

75. In my view, the judge was right to reject both the ATE policy and the Deed of
Indemnity. Neither provided adequate security for Erith's costs. It appears that this
may have been finally accepted by JDC: I note that the revised offer referred to in
paragraphs 61-63 above makes no mention of either the ATE policy or this Deed of
Indemnity. If my lords agree, I would dismiss ground 2 of the appeal.

8. GROUND 3: INSOLVENCY RULE 6.42

76. Rule 6.42(1) provides that "all fees, costs, charges and other expenses incurred in the
course of the winding up are to be treated as expenses of the winding up". Rule
6.42(4)(a) prioritises expenses incurred by the liquidator in legal proceedings over the
costs and expenses of the liquidation. Ground 3 of the appeal suggests that, if the
ATE policy and/or the Deed of Indemnity did not of themselves constitute adequate
security for Erith's costs, the judge was wrong in holding that Insolvency Rule 6.42
did not itself provide security for any costs orders which may be made in favour of
Erith in subsequent proceedings. In other words, ground 3 is an alternative to ground
2; it does not affect the principal part of the appeal arising under ground 1, in
connection with the £1.2 million. In any event, for the reasons set out below, I
consider that ground 3 is untenable.

77. First, I am confident that this argument is not open to JDC on appeal, because they
never suggested to the judge that the Rule itself provided the necessary security. They
raised the Rule tangentially in their post-hearing submissions (when it did not go to
the point on which the judge asked a short question) but even then they did not
suggest that the Rule itself could provide the necessary security for costs orders in
Erith's favour. The judge was therefore entitled to treat the post-hearing reference by
JDC to Rule 6.42 as simply a part of the debate about the adequacy of the ATE policy,
as he did at [83].

78. Secondly, in the absence of any evidence that, at the end of any litigation pursued by
Erith to recover any over-payment, there would be any sums available to the
liquidators to disburse to Erith as expenses, I do not consider that Insolvency Rule
6.42 has any relevance.

79. Thirdly, I do not consider that the Rule (or the authorities, like Re MT Realisations
Ltd [2004] 1 WLR 1678) are of assistance in this situation. Rule 6.42(4) puts various
expenses in order of priority. Rule 6.42(4)(a) prioritises expenses incurred by the
liquidator in legal proceedings over the costs and expenses of the liquidation. But that
would concern proceedings brought by the liquidators of JDC. It simply does not
follow that, if Erith commenced proceedings for repayment and obtained costs orders
against the liquidator in those proceedings, those costs orders would be prioritised at
all. JDC's argument must be that they would be prioritised because they were
effectively part of the adjudication enforcement proceedings started by the liquidator.
But are they? It would be said by the liquidators that any proceedings commenced by
Erith had nothing to do with the adjudication; that Erith had taken it upon
 themselves to commence their own proceedings against an insolvent company; and so
they took the risk that any costs orders in their favour would not be met. That was
surely why JDC offered security for those costs (albeit an offer found by the judge to
be inadequate) in the first place.

80. Fourthly, Mr Constable indicated that, because he said that the liquidators had
collected in and paid out assets worth over £712,000, they would be potentially liable
to Erith up to this sum pursuant to this Rule. But there was no evidence to support
that figure in the many witness statements[8]. More importantly, I reject the notion
that proper security can be found in the ability of Erith – at the end of its cross-claim
against JDC - to sue the liquidators personally for any costs orders which have not
been met. That is simply too uncertain and speculative to amount to security in the
true sense of the word.

81. Accordingly, I reject JDC's submissions that in some way Insolvency Rule 6.42
provides Erith with the necessary "reasonable reassurance" that adequate security
exists in respect of any subsequent costs orders in their favour. If my lords agree, I
would dismiss ground 3 of the appeal.

9. IS A COMPANY IN LIQUIDATION ENTITLED TO ENTER

JUDGMENT IN THESE CIRCUMSTANCES?

9.1 The Law

82. The judge said that, although it will be far from the usual case, there may be
circumstances in which a company in liquidation could enforce the decision of an
adjudicator. He did not address this issue further. That may be because he was able to
decide the application on other grounds, and it may also be because of the short time
he had had to assimilate the decision in Bresco. But it seems to me to raise a potentially
important question. Is a company in liquidation entitled to enter judgment on its
claim arising out of an adjudicator's decision, without regard to the paying party's
set-off and counterclaim?

83. The starting point is Hanak v Green [1958] 2 QB 9. In that case, Mrs Hanak was
entitled to £75 in respect of defective work, but Mr Green was entitled to £84 for
extras and delay. The Court of Appeal found that the judge had been wrong to enter
judgment for Mrs Hanak and Mr Green separately; they found that Mr Green's cross
claim gave rise to an equitable set-off and that therefore judgment should have been
entered in his favour, but solely in relation to the balance of £10. Similarly, in MS New
World Fashions Hoffman LJ (as he then was, sitting at first instance) said that in
comparable circumstances, "neither party can prove or sue for his claims. An account
must be taken and he must prove or sue (as the case may be) for the balance". That
approach was approved by the Court of Appeal.

84. The question of set-off in an insolvency case was dealt with comprehensively in Stein v
Blake [1996] AC 243. In that case the claimant had a claim in contract against the
defendants. The defendant counterclaimed for damages for misrepresentation. The
claimant went bankrupt and the Trustee assigned the claim to the claimant. The
House of Lords held that the chose in action was no longer capable of being assigned;
all that could be assigned was the balance due after set-off. Lord Hoffman said at 252:
 "Bankruptcy set-off, on the other hand, affects the substantive rights of the
parties by enabling the bankrupt's creditor to use his indebtedness to the
bankrupt as a form of security. Instead of having to prove with other creditors
for the whole of his debt in the bankruptcy, he can set-off pound for pound
what he owes the bankrupt and prove or pay only the balance".

In this way, Lord Hoffman concluded that the original chose in action ceased to exist
and was "replaced by a claim to a net balance".

85. The effect of Stein v Blake was noted in the adjudication context in Bouyges. There,
having cited Stein v Blake, Chadwick LJ said:

"33. The importance of the rule is illustrated by the circumstances in the

present case. If Bouygues is obliged to pay to Dahl-Jensen the amount
awarded by the adjudicator, those monies, when received by the
liquidator of Dahl-Jensen, will form part of the fund applicable for
distribution amongst Dahl-Jensen's creditors. If Bouygues itself has a
claim under the construction contract, as it currently asserts, and is
required to prove for that claim in the liquidation of Dahl-Jensen, it will
receive only a dividend pro rata to the amount of its claim. It will be
deprived of the benefit of treating Dahl-Jensen's claim under the
adjudicator's determination as security for its own cross-claim.
34. Lord Hoffman pointed out, at page 252 in Stein v Blake that the
bankruptcy set-off requires an account to be taken of liabilities which at
the time of the bankruptcy may be due but not yet payable, or which
may be unascertained in amount or subject to contingency. Nevertheless,
the insolvency code requires that the account shall be deemed to have
been taken, and the sums due from one party shall be set off against the
other, as at the date of insolvency order. Lord Hoffman pointed out also
that it was an incident of the rule that claims and cross-claims merge and
are extinguished; so that, as between the insolvent and the other party,
there is only a single claim - represented by the balance of the account
between them. In those circumstances it is difficult to see how a
summary judgment can be of any advantage to either party where, as the
1996 Act and paragraph 31 of the Model Adjudication Procedure make
clear, the account can be reopened at some stage; and has to be
reopened in the insolvency of Dahl-Jensen.
35. Part 24, rule 2 of the Civil Procedure Rules enables the Court to give
summary judgment on the whole of a claim, or on a particular issue, if it
considers that the defendant has no real prospect of successfully
defending the claim and there is no other reason why the case or issue
should be disposed of at a trial. In circumstances such as the present,
where there are latent claims and cross-claims between parties, one of
which is in liquidation, it seems to me that there is a compelling reason
to refuse summary judgment on a claim arising out of an adjudication
which is, necessarily, provisional. All claims and cross-claims should be
resolved in the liquidation, in which full account can be taken and a
balance struck. That is what rule 4.90 of the Insolvency Rules 1986
requires"
86. In Bresco the Supreme Court said that the Court of Appeal had been wrong to find
that a company in liquidation could not commence adjudication proceedings. Lord
Briggs explained how and why the commencement of an adjudication, and the
determination of a claim in adjudication by a construction professional was not a
futile exercise. He said:

"59. The starting point, once it is appreciated that there is jurisdiction

under section 108 in such circumstances, is that the insolvent company
has both a statutory and a contractual right to pursue adjudication as a
means of achieving resolution of any dispute arising under a
construction contract to which it is a party, even though that dispute
relates to a claim which is affected by insolvency set-off. It follows that
it would ordinarily be entirely inappropriate for the Court to interfere
with the exercise of that statutory and contractual right. Injunctive relief
may restrain a threatened breach of contract but not, save very
exceptionally, an attempt to enforce a contractual right, still less a
statutory right."

I have taken that to be the ratio of Bresco. Mr Constable agreed.

87. As Lord Briggs explained, there are many reasons why the ability to commence an
adjudication is a useful commercial weapon, irrespective of whether a decision at the
end is capable in law of summary enforcement. He was therefore only tangentially
concerned with possible enforcement. Even then, Lord Briggs had very much in mind
that any enforcement would not be for the claim, but for the net balance after taking
into account set-off: see [29]. His subsequent obiter observations on enforcement were
as follows:

"64. Thus it is no answer to the utility (rather than futility) of

construction adjudication in the context of insolvency set-off to say that
the adjudicator's decision is unlikely to be summarily enforceable. The
reasons why summary enforcement will frequently be unavailable are set
out in detail in Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd [2001] 1 All ER
(Comm) 1041, paras 29-35 per Chadwick LJ. As he says, the Court is
well-placed to deal with those difficulties at the summary judgment stage,
simply by refusing it in an appropriate case as a matter of discretion, or
by granting it, but with a stay of execution. There is in those
circumstances no need for an injunction, still less a need to prevent the
adjudication from running its speedy course, as a potentially useful
means of ADR in its own right.
65. Furthermore it will not be in every case that summary enforcement
will be inappropriate. There may be no dispute about the cross-claim,
and the claim may be found to exist in a larger amount, so that there is
no reason not to give summary judgment for the company for the
balance in its favour. Or the disputed cross-claim may be found to be of
no substance. Or, if the cross-claim can be determined by the
adjudicator, because the claim and cross-claim form part of the same
"dispute" under the contract, the adjudicator may be able to determine
the net balance. If that is in favour of the company, there is again no
 reason arising merely from the existence of cross-claims why it should
not be summarily enforced.
66. True it is that the adjudicator may over-value the net balance in
favour of the company, so that summary enforcement may leave the
respondent to the reference having first to establish a true balance in its
favour and then to pursue it by proof (or possibly as a liquidation
expense) against an under-funded liquidation estate. But over-valuation
is a problem that may arise in any liquidation context, even where there
is no cross-claim. There is no suggestion that, absent insolvency set-off,
adjudication is ordinarily futile merely because the company making the
reference is in liquidation or distributing administration.
67. The proper answer to all these issues about enforcement is that they
can be dealt with, as Chadwick LJ suggested, at the enforcement stage, if
there is one. In many cases the liquidator will not seek to enforce the
adjudicator's decision summarily. In others the liquidator may offer
appropriate undertakings, such as to ring-fence any enforcement
proceeds: see the discussion of undertakings in the Meadowside case.
Where there remains a real risk that the summary enforcement of an
adjudication decision will deprive the respondent of its right to have
recourse to the company's claim as security (pro tanto) for its
cross-claim, then the Court will be astute to refuse summary judgment."

88. Accordingly, it appears that, as to enforcement, Lord Briggs' starting point was that
summary judgment to enforce an adjudicator's decision will frequently be unavailable
when the claimant is in liquidation, with the court either refusing it outright or
granting it with an immediate stay of execution. He also noted that where the
liquidator sought to enforce the adjudicator's decision summarily, there could be a real
risk that it would deprive the respondent of its right to have recourse to the insolvent
company's claim as security for its cross-claim, and that in such circumstances the
court would again refuse summary judgment. It might be said with some force that
those observations are directly applicable here.

89. The paragraph with which I have had some difficulty is [65]. Lord Briggs gives
examples there of case where summary enforcement "will not be inappropriate". The
first is where there is no dispute about the cross-claim, and the second is where the
disputed cross-claim may be found to be of no substance. In both those instances, it
is perhaps easy to see why summary enforcement would not be inappropriate. It is the
third example which is more problematic. That, in the words of Lord Briggs, is where
"the cross-claim can be determined by the adjudicator, because the claim and
cross-claim form part of the same 'dispute' under the contract." He says that in those
circumstances the adjudicator may be able to determine "the net balance". Mr
Constable submitted that that was directly applicable to this case, because this was a
final account dispute and, leaving aside the small claim on the only other contract
between Erith and JDC, the finding of what was due on the final account was
therefore a finding of a net balance.

90. The difficulty is that, on the face of it, Lord Briggs' third example takes no account of
the fact that an adjudicator's decision is necessarily provisional, and cannot therefore
be regarded as the final determination of the net balance. To put the point another
 way, the third example used by Lord Briggs at [65] would appear to run counter to the
reasoning and result in Bouygues, where summary judgment was refused.

91. Taking it in the round, I do not believe that Lord Briggs was saying in
his obiter observations about enforcement that a company in liquidation was entitled
to enter judgment (let alone recover the monies that were the subject of that
judgment) on the basis of a provisional decision, in circumstances where there was a
continuing set-off and cross-claim. He did not suggest that there was any right to
enforce a claim which did not take into account the set-off and cross-claim; on the
contrary, he expressly approved both MS Fashions and Stein v Blake. Neither was he
saying that, contrary to what Chadwick LJ said in Bouygues, summary judgment should
be granted and enforced "on a claim arising out of an adjudication which is,
necessarily, provisional". On the contrary, he expressly approved, at [64], what
Chadwick LJ had said in Bouygues.

92. I should also say something about Meadowside, a case on which Mr Constable placed
some reliance. The discussion there about what might constitute sufficient security in
the right case was expressly approved by Lord Briggs in Bresco. On analysis, that
discussion was also obiter, this time because the deputy judge had refused the
insolvent's company's application for summary judgment on the grounds of
champerty.

93. In Meadowside, there was only a brief discussion about the insolvent company's cause
of action being limited to the net balance, and no debate at all about the fact that the
final determination of the net balance remained outstanding, because the adjudicator's
decision could only be regarded as provisional. Indeed, it does not appear to have
been seriously disputed that, because the adjudicator had been dealing with a final
account claim, his decision was, in principle, capable of being enforced. There was no
discussion about the Insolvency Rules nor the 'provisional' nature of the adjudicator's
decision. I quite accept that, in circumstances where the adjudicator has (by express or
tacit agreement) finally decided the net balance between the parties, then the
consideration would move to security issues. But where the decision remains
provisional then, as the deputy judge noted at [56], there is a fundamental
incompatibility between adjudication and insolvency and, in such a situation, "it is
clear that the rights under the insolvency regime prevail".

9.2 Discussion

94. This was not a case where the parties had agreed that the adjudicator would finally
decide the net balance. Erith maintain a set-off and cross-claim and say that JDC have
been overpaid, even before account is taken of the sum of £1.2 million identified in
the Decision. That set-off and cross-claim has yet to be finally determined. Prima facie,
therefore, it would appear that, in accordance with the principles of insolvency set-off,
there is no entitlement to judgment on the sum provisionally found due to the
insolvent company.

95. At one stage, Mr Constable's submissions on this point were very limited: he
submitted that JDC was only entitled to summary judgment in this case because the
sum due was the 'net balance'; that there were no significant claims under any other
contracts; and that there were no non-contractual claims either. He said that it was
 only because all those conditions were met in this case that there was, subject to the
provision of adequate security, an entitlement to summary judgment. However, in
answer to a question from my lord, Lord Justice Lewison, Mr Constable went much
further and suggested that an insolvent claimant in adjudication enforcement should
(subject to jurisdiction and natural justice arguments) always be entitled to summary
judgment because, as he said, adjudication was pointless without summary
enforcement.

96. In my view, Mr Constable's submission is untenable for a number of reasons. First, it

seeks to rewrite Bresco. The Supreme Court's focus was on how and why an insolvent
claimant should be entitled to commence adjudication proceedings, and should not be
stopped by the court from doing so. It was not directly concerned with enforcement
at all. There is nothing in Bresco to support the proposition that, without summary
enforcement, adjudication is futile: on the contrary, Lord Briggs gives numerous
reasons as to why adjudication is far from futile even though summary enforcement
in favour of an insolvent company would be uncommon.

97. Secondly, I consider that the submission that there is an entitlement to summary
judgment in these circumstances is contrary to the clear statement of principle
in Bouygues, which is not only binding on this court, but was also expressly affirmed
in Bresco. To the extent that there was a conflict between the adjudication and
insolvency regimes, Mr Constable's submission would permit the adjudication regime
to prevail, contrary to his own analysis in Meadowside. In my judgment, there is no way
round these fundamental difficulties.

98. Thirdly, even Mr Constable's more limited submission does not get over the obstacles
identified above. I do not consider that the provisional finding of an adjudicator, even
on a single final account dispute where no other significant non-contractual or other
contractual claims arise, can be treated as if it were a final determination of the net
balance, in circumstances where the other party maintains its set-off and cross-claim.
It is not a question of security; it is a question of the insolvent company's cause of
action being for the net balance only. It is not a matter of discretion because it is
impossible to waive or disapply the Insolvency Rules. As my lord, Lord Justice
Lewison put it during argument, insolvency set-off must apply to adjudication; it is
not somehow an exception. To find otherwise would give rise to incoherence.

99. Another way of looking at it is by reference to the purported assignment of this claim
by the liquidators to HJ (paragraphs 9-10 and 14 above). What did they purport to
assign? What is it that is held on trust for HJ? It cannot be the claim (see Stein v Blake).
Surely it can only be the net balance? And if it is just the net balance, it must in law be
the balance as finally determined, not as per the adjudicator's provisional view.

100. Finally, I must reiterate what I said at paragraph 58 above, about the lack of
purpose in entering a judgment only to order, at best from the claimant's point of
view, the payment of the judgment sum into an escrow account or into court. That is
of no immediate benefit to anyone, certainly not to the insolvent company. They may
say that it would then act as a spur to the other side to get on with their cross-claim
but, as I set out in the next paragraph, that could be achieved in a number of different
ways, without pointlessly tying up the money in the way proposed. As I have said, I
do not accept Mr Constable's underlying submission that the threat of summary
 enforcement is required to make adjudication work in every case, particularly where
the claimant is insolvent and the threat would operate to the detriment of the solvent
party (because, just to take an example from Mr Constable's own submissions, he
would have to commence his cross-claim within 6 months or lose the protection of
insolvency set-off). Such a principle is contrary to insolvency law. It is certainly not
articulated in Bresco.

101. It might be said that this is an unsatisfactory result because it allows a defendant
like Erith to take advantage of JDC's insolvency to avoid paying what they owe. That
may, however, be the consequence of the insolvency regime prevailing. But it also
wrongly assumes that the only weapon available to JDC is summary judgment. That is
not so, particularly in circumstances where, as here, the insolvent company can call on
the resources of HJ. Having commenced enforcement proceedings, an insolvent
claimant can then get the defendant to "put up or shut up". It can make the same
(larger) claim that it made in the adjudication, even if it makes plain that it would
accept the adjudicator's lower figures (thereby putting the defendant at the risk of
paying indemnity costs from the outset). It may be possible for the claimant to
demonstrate an entitlement to an interim payment under CPR Part 25. The fact that
the adjudicator has apparently considered the claims and found in the claimant's
favour will put the defendant on the back foot throughout. Robust case management
would lead to an efficient resolution of the remaining areas of dispute. As I have said,
on the timetable here, if JDC had not sought summary judgment, but adopted a more
realistic approach, the trial of the action would have been completed by now.

102. Accordingly, for all these reasons, even if I had been persuaded that the judge had
erred in his consideration of the adequacy of security and allowed one or more of the
grounds of appeal, I would have concluded that JDC were not entitled to summary
judgment in any event.

10 STAY OF EXECUTION AND OTHER MATTERS

10.1 Stay of Execution

103. It is unnecessary to say very much about a stay of execution in this case because, for
the reasons set out above, JDC has not made out its claim that it was entitled to
summary judgment. But I should say that, even if I had come to a different view on
the prior questions in this appeal, and so would have entered summary judgment on
the part of JDC, I would have granted Erith a stay of execution in relation to the
whole sum. I explain why briefly below.

104. First, it seems to me that that is consistent with the authorities. In Bouygues,
Chadwick LJ said that the fact of the claimant's insolvency when there was a
cross-claim was a compelling reason to refuse summary judgment, but he was content
on that facts of that case, to impose a stay. In Bresco, Lord Briggs said that the Court
was well placed to deal with difficulties at the summary judgment stage "simply by
refusing it an appropriate case as a matter of discretion, or by granting it, but with a
stay of execution." Both cases suggest that, in these circumstances, a stay of execution
is appropriate even if summary judgment is granted. That should, I think, be regarded
as the default position.
105. I acknowledge that, in Meadowside, the focus was more on the provision of security
so that judgment could be entered without a stay, and the money could be provided
to the liquidators, even if it was "ring fenced". I can see that, in the right case, if there
was an entitlement to summary judgment, the default position could be set aside and
that, instead of a stay of execution, the money could be paid out to the claimant
company (obviously subject to the ring fencing). But given the uncompromising
stance adopted by JDC in this case – doubtless prompted by the overwhelming desire
on the part of HJ to get their hands on the money – I can see that, here, the default
option was the only appropriate one.

106. Secondly, I consider that this is consistent with the way in which the TCC has
sought to enforce judgments against claimants who, whilst not in liquidation, are in a
parlous financial position. The principles were summarised in Wimbledon v Vago. If it is
appropriate to grant a stay because the payee may be in financial difficulties and there
is a risk that the monies will not be returned, it is surely appropriate where the
claimant is in liquidation and the claim is almost a decade old.

107. Thirdly, it follows from what I have already said that I reject Mr Constable's
submission that, as a matter of principle, whenever the court considered that there
were problems with the security or undertakings being offered by the insolvent party,
there was still an entitlement to summary judgment with a stay pending the provision
of further and better offers. The claimant in such circumstances cannot keep coming
back to court on the off chance that, at some point, they may make an adequate offer.
The onus is on the claimant throughout, as explained at paragraph 32 above.

108. Finally, I note that the judge dealt with this matter in detail at [121] – [133],
explaining why a stay of execution would have been appropriate. In order to limit my
own already over-long judgment, I would simply adopt and commend what he said
there.

10.2 The Respondent's Notice

109. At the hearing of the appeal, there was no time for either party to address the
points in the Respondent's Notice. The principal point taken there is that the
arrangements between the liquidators of JDC and HJ were champertous and not a
valid Damages Based Agreement. In circumstances where I would dismiss the appeal
in any event, it is unnecessary to consider the Respondent's Notice any further.

LORD JUSTICE EDIS:

110. I agree that, for the reasons given by Coulson LJ, this appeal should be dismissed.

LORD JUSTICE LEWISON:

111. I agree with Coulson LJ that the appeal should be dismissed on all three grounds on
which it was advanced. But as he rightly says, the appeal raises a wider point.
Although I have read and agree with what he says on the wider point, I would like to
explain the basis of my agreement in my own words.
112. As Lord Hoffmann explained in Stein v Blake [1996] AC 243, set-off has a long
history. Legal set-off enabled mutual debts to be set off one against another; but did
not affect the substantive rights of either party. Legal set-off in courts of common law
was permitted by the Insolvent Debtors' Relief Act 1728, and the Statute of Set Off
1734. The claims on both sides had to be liquidated debts or money demands which
could be ascertained with certainty at the time of pleading. At that time, any other
cross-claim in a court of common law had to be made in a separate action. It was not
until the Supreme Court of Judicature Act 1873 that common law courts could
entertain a cross-claim in the same action as the claim. That was, however, mitigated
to some extent by the development of the principle of abatement of price.

113. In courts of equity the position was different. A court of equity could grant an
injunction restraining proceedings in the common law courts. In order for a court of
equity to grant such an injunction it had to be shown that the cross-claim was such as
to "impeach the title to the legal demand". In practice what this meant was that the
cross-claim was so closely connected with the legal demand that it would be
manifestly unjust to allow payment to be enforced without taking into account the
cross-claim.

114. Bankruptcy set-off, as Lord Hoffmann explained, essentially follows the equitable
model. He said at 252:

"Bankruptcy set-off, on the other hand, affects the substantive rights of the
parties by enabling the bankrupt's creditor to use his indebtedness to the
bankrupt as a form of security. Instead of having to prove with other creditors
for the whole of his debt in the bankruptcy, he can set off pound for pound
what he owes the bankrupt and prove for or pay only the balance." (Emphasis
added)

115. At 254 he approved the following statement in the decision of the High Court of
Australia in Gye v McIntyre (1991) 171 CLR 609:

"[Insolvency set-off] produces a balance upon the basis of which the

bankruptcy administration can proceed. Only that balance can be claimed in the
bankruptcy or recovered by the trustee. If its operation is to produce a nil balance, its
effect will be that there is nothing at all which can be claimed in the bankruptcy
or recovered in proceedings by the trustee." (Emphasis added)

116. Lord Hoffmann continued at 255:

"In my judgment the conclusion must be that the original chose in action
ceases to exist and is replaced by a claim to a net balance. If the set-off is mandatory
and self-executing and results, as of the bankruptcy date, in only a net balance
being owing, I find it impossible to understand how the cross-claims can, as
choses in action, each continue to exist."

117. So it was that Mr Stein's trustee in bankruptcy was unable to assign to him his
original claim against Mr Blake. The only relevance (or continuing existence) of the
cross-claims is for the purpose of quantifying them in order to ascertain what that
balance is.
118. In the case of corporate insolvency, set-off is governed by rule 14.25 of the
Insolvency (England and Wales) Rules 2016 ("IR"). IR 14.25 (3) and (4) provide for
dealing with the balance. If the balance is owed to the creditor then only that balance
is provable. If the balance is owed to the company, then that must be paid to it.

119. In MS Fashions Ltd v BCCI [1993] Ch 425 three company directors each signed as a
"principal debtor" an agreement with the bank whereby, as guarantee for repayment
of loans by the bank to his company, the bank could withdraw money from his
deposit account with that bank towards satisfaction of his company's debts. Each of
the directors' debts was a secured debt. In 1992 the bank was compulsorily wound up.
The directors claimed to be entitled to set off the sums in their deposit accounts
against the companies' respective liabilities to the bank. At first instance Hoffmann LJ
said at 432:

"If there have been mutual dealings before the winding up order which have
given rise to cross-claims, neither party can prove or sue for his full claim. An account
must be taken and he must prove or sue (as the case may be) for the balance." (Emphasis
added)

120. In this court, upholding Hoffmann LJ, Dillon LJ said at 446:

"If there are indeed mutual credits or mutual debts or mutual dealings between
a company, or a bankrupt, and a creditor, then the set-off applies
notwithstanding that one or other of the debts or credits may be secured."

121. He continued at 448:

"If there is set-off between [the directors] and B.C.C.I. that must automatically
reduce or extinguish the indebtedness to B.C.C.I. of the companies. The
statutory set-off is not something which B.C.C.I. can, as it were, place in a
suspense account. It operates to reduce or extinguish the liability of the
guarantor and necessarily therefore operates as in effect a payment by him to
be set against the liability of the principal debtor. A creditor cannot sue the
principal debtor for an amount of the debt which the creditor has already
received from a guarantor."

122. Insolvency set-off is mandatory. It is not a matter of choice. Indeed, parties to

mutual dealings cannot contract out of it: National Westminster Bank Ltd v Halesowen
Presswork and Assemblies Ltd [1972] AC 785. In Re Bank of Credit and Commerce
International SA (No. 10) [1977] Ch 213, it was argued that the court had an inherent
power to disapply the rules about set-off. Sir Richard Scott V-C roundly rejected that
argument. He said:

"I do not accept that there is any such inherent power. The courts have, in my
judgment, no more inherent power to disapply the statutory insolvency scheme
than to disapply the provisions of any other statute."

123. The effect of equitable set-off on the form of judgment that the court enters is
well-illustrated by the building contract case of Hanak v Green [1958] 2 QB 9. Mrs
Hanak bought a house from Mr Green, who was a builder. He agreed to carry out
 certain works to the house for £800. She ordered some extra work to be done; but
the works were not complete by the agreed date. Mr Green, on the other hand, said
that the problems had arisen because Mrs Hanak had refused to give his workmen
access. Eventually Mrs Hanak sued Mr Green, listing a number of items that she said
had not been satisfactorily completed. Mr Green, in turn, set up a cross-claim
claiming a quantum meruit for extra work done, loss attributable to the refusal of
access, and damage to tools. The county court judge found that Mrs Hanak was
entitled to £74 17s 6d; and Mr Green was entitled to £84 19s 3d. He entered
judgment for Mrs Hanak for £74 17s 6d on her claim and also entered judgment for
Mr Green for £84 19s 3d on his cross-claim. He gave Mrs Hanak the costs of the
claim; and gave Mr Green the costs of the cross-claim. Mr Green appealed on the
ground that his cross-claim was a set-off; and that he should have been awarded the
costs of the whole action.

124. After a review of the authorities Morris LJ said at 23:

"The position is, therefore, that since the Judicature Acts there may be (1) a
set-off of mutual debts; (2) in certain cases a setting up of matters of complaint
which, if established, reduce or even extinguish the claim, and (3) reliance upon
equitable set-off and reliance as a matter of defence upon matters of equity
which formerly might have called for injunction or prohibition."

125. He went on to say:

"Reliance may be placed in a court of law upon any equitable defence or

equitable ground for relief: so also any matter of equity on which an injunction
against the prosecution of a claim might formerly have been obtained may be
relied on as a defence. This may involve that there will have to be an
ascertainment or assessment of the monetary value of the cross-claim which, as
a matter of equity, can be relied on by way of defence. But this does not mean
that all cross-claims may be relied on as defences to claims."

126. He then considered the nature of Mr Green's cross claim and decided that it fell
within the category of cases which gave rise to an equitable set-off. That led him to
the following conclusion at 26:

"In my judgment, therefore, the defendant succeeded in defeating the claim of

the plaintiff and in establishing his right to £10 1s. 9d. on the counterclaim. It
becomes necessary to consider what is the fair order to make as to costs on this
altered and different basis. I think that there should be judgment for the
defendant on the claim with costs on scale 4: that there should be judgment for
the defendant for £10 1s. 9d. on the counterclaim with costs on scale 2…"

127. In other words, the judge was wrong to have entered judgment for Mrs Hanak at
all.

128. This court applied that reasoning in Connaught Restaurants Ltd v Indoor Leisure
Ltd [1994] 1 WLR 501. In that case landlords claimed rent from the tenant; and the
tenant counterclaimed for damages for breach of covenant for quiet enjoyment,
which it also pleaded as a set-off. The quantum of the cross-claim exceeded the
 amount of the unpaid rent. The judge gave judgment for the landlords on the claim;
and judgment for the tenant on the cross-claim. This court held that he was wrong to
have done so. This court accepted the tenant's submission:

"The judge ought therefore, they say, to have given judgment with costs for the
tenants, in the landlords' action for rent, and judgment with costs for the
tenants on their counterclaim in a sum representing the excess of the damages
over the rent, with interest on that balance. An order in that form would
produce a substantially more favourable result for the tenants, in terms not
only of costs but also of interest."

129. The effect of the cases to which I have referred seems to me to be clear. Insolvency
set-off is automatic (or "self-executing" as it is sometimes called). It affects the
substantive rights of the parties; and will reduce or extinguish a debt. The claims exist
for the purpose of quantification only. When it comes either to proving in the
insolvency or suing in court, it is only the net balance which can be proved or
recovered. If claim and cross claim are both litigated (and the cross claim amounts to
a set-off), and the latter overtops the former, then judgment on the claim must be
entered against the claimant and in favour of the cross claimant. It is wrong in
principle to enter judgment separately on both claim and cross-claim.

130. I come now to Michael J Lonsdale (Electrical) Ltd v Bresco Electrical Services Ltd [2020]
UKSC 25, [2020] Bus LR 1140. There were two issues before the Supreme Court: (1)
did the insolvency of Bresco deprive the adjudicator of jurisdiction? (2) should an
injunction be granted restraining the continuation of the adjudication? Like this court,
the Supreme Court answered the first question "no"; but reversing this court, also
answered the second question "no".

131. In the course of his judgment Lord Briggs observed that the adjudication regime
was not simply concerned with cash flow. It had become an important method of
alternative dispute resolution in its own right. In most cases the adjudication becomes
final because it is not challenged. The right to adjudicate is either statutory or
contractual. It can be invoked at any time. The adjudicator's remit is a broad one. The
process is speedy and, at least compared with litigation or arbitration, is cheap. The
adjudicator will be an independent and experienced construction professional. Mr
Constable QC submitted that the reason why 98 per cent of disputes culminate in an
adjudicator's award and go no further is because it is widely known in the
construction world that (save in exceptional circumstances) the court will summarily
enforce the award. It is because the award is given teeth by the court's robust
approach to enforcement, which results in one party actually parting with money in
favour of the other, that the vast majority of disputes terminate at that stage.

132. In a section of his judgment beginning at [27] Lord Briggs considered the impact of
insolvency set-off. At [29] he pointed out that "for some purposes the original
cross-claims are replaced by a single claim for the balance"; and referred to Stein v
Blake. He went on to say that:

"Within the liquidation, a net balance owing to the creditor must be pursued by
proof of debt in the ordinary way. The liquidator is entitled to be paid the full
amount of any net balance owing by the creditor, and may exercise any available
 remedies for its quantification and recovery, including litigation, arbitration or
ADR…" (Emphasis added)

133. At [30] he said:

"If there is no dispute as to the existence and amount of the claims and
cross-claims this is in practice a matter of simple arithmetic, the net balance
being the difference between the aggregate of the claims and the aggregate of
the cross-claims. But if any of the claims and cross-claims are in dispute, then
those disputes will need first to be resolved, by reference to the individual
merits of each, before the arithmetic resumes…"

134. He then went on to discuss the flexibility of the procedural means by which that
quantification of the net balance may take place. There followed a discussion of the
adjudicator's jurisdiction (in the course of which he approved MS Fashions);
concluding that the insolvency did not deprive the adjudicator of jurisdiction. Thus, in
agreement with this court, the cross-appeal was dismissed.

135. That left the appeal. It must be firmly borne in mind that the issue in the appeal
was whether an injunction should be granted restraining the progress of the
adjudication. That was the only issue that called for decision on the appeal. Anything
else that Lord Briggs said about enforcement was obiter.

136. This court had decided that an adjudication would be a futile exercise. Lord Briggs
disagreed. His first point, at [59], was that the insolvent company has both a statutory
and a contractual right to pursue adjudication as a means of achieving resolution of
any dispute arising under a construction contract to which it is a party, even though
that dispute relates to a claim which is affected by insolvency set-off. It would
therefore be inappropriate to interfere with that right by injunction.

137. His second point, at [60], was that:

"… adjudication has, as was always intended, become a mainstream method of

ADR, leading to the speedy, cost effective and final resolution of most of the
many disputes that are referred to adjudication. Dispute resolution is therefore
an end in its own right, even where summary enforcement may be inappropriate or for
some reason unavailable." (Emphasis added)

138. His third point, at [62], was that an adjudicator is better placed than a liquidator to
quantify claims and cross claims in construction disputes. Thus he concluded at [63]
that the adjudicator's resolution of the construction dispute referred by the liquidator
may be of real utility to the conduct of the process of set-off within the insolvency
process as a whole.

139. At this stage of his discussion it is clear that he disagreed with this court's
description of the adjudication as futile. That was enough to dispose of the appeal.
But he went on to consider the question of enforcement. As Mr Constable QC
accepted, this part of Lord Briggs' judgment was obiter.
140. Lord Briggs said, at [64], that an adjudicator's decision "is unlikely to be summarily
enforceable". In so saying, he referred with approval to the judgment of Chadwick LJ
in Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd [2001] 1 All ER (Comm) 1041. It is, I think,
worth quoting what Chadwick LJ said at [35]:

"In circumstances such as the present, where there are latent claims and
cross-claims between parties, one of which is in liquidation, it seems to me that
there is a compelling reason to refuse summary judgment on a claim arising out
of an adjudication which is, necessarily, provisional. All claims and cross-claims
should be resolved in the liquidation, in which full account can be taken and a
balance struck. That is what rule 4.90 of the Insolvency Rules 1986 requires."

141. Lord Briggs continued:

"… As he says, the court is well placed to deal with those difficulties at the
summary judgment stage, simply by refusing it in an appropriate case as a
matter of discretion, or by granting it, but with a stay of execution. There is in
those circumstances no need for an injunction, still less a need to prevent the
adjudication from running its speedy course, as a potentially useful means of
ADR in its own right.
[65] Furthermore it will not be in every case that summary enforcement will be
inappropriate. There may be no dispute about the cross-claim, and the claim
may be found to exist in a larger amount, so that there is no reason not to give
summary judgment for the company for the balance in its favour. Or the
disputed cross-claim may be found to be of no substance. Or, if the cross-claim
can be determined by the adjudicator, because the claim and cross-claim form
part of the same "dispute" under the contract, the adjudicator may be able to
determine the net balance. If that is in favour of the company, there is again no
reason arising merely from the existence of cross-claims why it should not be
summarily enforced."

142. Having referred to some alleged difficulties, Lord Briggs concluded at [69]:

"The proper answer to all these issues about enforcement is that they can be
dealt with, as Chadwick LJ suggested, at the enforcement stage, if there is one.
In many cases the liquidator will not seek to enforce the adjudicator's decision
summarily. In others the liquidator may offer appropriate undertakings, such as
to ring-fence any enforcement proceeds: see the discussion of undertakings in
the Meadowside case 186 Con LR 148. Where there remains a real risk that the
summary enforcement of an adjudication decision will deprive the respondent
of its right to have recourse to the company's claim as security (pro tanto) for
its cross-claim, then the court will be astute to refuse summary judgment."

143. There is, I think, no particular difficulty with most of what Lord Briggs said at [65].
If the net balance can be readily determined on a summary application then it is
consistent with all the cases, both on equitable set-off and insolvency set-off, that
judgment may be given for the balance. That may not, however, be the case where the
adjudicator has decided the balance. The adjudicator's decision, while binding, is not a
final decision. It is open to the court (or an arbitrator) to revisit the question of set-off.
In that event the adjudicator's actual reasoning has no evidential or legal
 weight: Aspect Contracts (Asbestos) Ltd v Higgins Construction plc [2015] UKSC 38, [2015] 1
WLR 2961 at [32]. An award made by an adjudicator within his jurisdiction in a case
not involving insolvency will be summarily enforced, even it is wrong: Bouygues (UK)
Ltd. Since it has been said that the nature of adjudication is such that it is "likely to
result in injustice" (Macob Civil Engineering Ltd v Morrison Construction Ltd [1999] BLR
93 at [14]); and the purpose of insolvency set-off is to do justice, there is, in my
judgment, a real problem in entering judgment for the company simply on the basis
of an adjudicator's rejection of a claimed set-off. Mr Constable met this point by the
argument that the court must strike a balance between the default position that
adjudicators' awards ought to be summarily enforced, and providing safeguards for
the cross-claim. The difficulty with this argument, in my judgment, is that the
application of insolvency set-off is not a discretionary matter.

144. There may also be a series of decisions by an adjudicator, arising at different stages
of a contract which give an award one way in some cases, and in a different way in
others. There may be cross-claims arising out of different contracts which have not
been the subject of adjudication; or there may be cross-claims which are not
contractual at all. In principle, insolvency set-off ought to apply across the board.
Although Mr Constable began by submitting that an adjudicator's award ought always
to be enforced, subject to the possibility of a stay of execution, he substantially
modified his position by the end of the hearing. The refined argument was that an
adjudicator's award ought to be enforced summarily where (a) it was a final account
net balance award and (b) there were no cross-claims which either arose out of
different contracts, or which were not contractual cross-claims at all. Even then, it
should only be enforced if safeguards were put in place to deal with a cross-claim,
even if the adjudicator had rejected it.

145. In my judgment, this argument is also problematic, although it builds on what Lord
Briggs said at [69]. In the first place, if the liquidator is only entitled to sue for the
balance (as held in Stein v Blake and MS Fashions, and as Lord Briggs himself said at
[29]) it is difficult to see how it is possible for a court to give judgment for a larger
sum. Put simply, it goes beyond the company's entitlement. Second, to give judgment
for a larger sum than the net balance amounts, in effect, to the disapplication of the
statutory insolvency scheme. As I have said, the statutory scheme is not discretionary;
and even contract cannot override it. There seems to be a debate in construction
circles about whether the enforcement of an adjudicator's award is the enforcement of
an underlying contractual obligation under the construction contract or is the
enforcement of an express or implied term to comply with the award itself. But
whichever of those views is correct, neither imbues an adjudicator's award with some
elevated legal status. It is true that the adjudicator's decision is provisionally binding.
But I cannot see a relevant distinction between that situation and one in which a fixed
payment is due under a contract which is definitively binding. Insolvency set-off
applies, as we have seen, even in the case of a secured debt. Third, despite having
approved Chadwick LJ's observation that the mere fact of insolvency set-off is itself a
"compelling reason" for refusing summary judgment, Lord Briggs went on to suggest
that it might be done. Fourth, it cuts across the well-established approach of the court
as held in Hanak v Green. In this connection, it must be borne in mind that, as Lord
Hoffmann explained in Stein v Blake, "the law says that the account shall be deemed to
have been taken and the sums due from one party set off against the other as at the
date of the bankruptcy." Fifth, it is not easy to see what utility a judgment will have, if
 the judgment sum cannot be used in a distribution to creditors, or in payment of the
expenses of the winding up. That is in sharp contrast to the adjudicator's decision,
which may enable the final resolution of any dispute; and thus allow money to be
placed at the liquidator's disposal. In some cases it may well be that entry of judgment
would raise a res judicata, such that the quantum of the claim is finally determined as
between the insolvent company and the creditor. But since an adjudicator's decision is
necessarily provisional, it is difficult to see how a res judicata could arise out of such a
decision.

146. One of the mechanisms to which Lord Briggs referred was the giving of
"appropriate undertakings", referring to the decision of Mr Constable QC
in Meadowside Developments Ltd v 12-18 Hill Street Management Co Ltd [2019] EWHC
2651 (TCC), [2020] Bus LR 917. In that case, Mr Constable said at [83] that the court
could give judgment if there were sufficient safeguards in place. He continued:

"[84] As near as possible, the safeguards must seek to place the responding
party in a similar position to if the company was solvent. I recognise that it is
unlikely that this would be wholly achieved. First, it is likely that should a
responding party want to pursue its cross-claim in further litigation, it would
likely be solely for the purposes of seeking repayment of any sum awarded, and
it would be unlikely to benefit from a finding that it was the true creditor in the
insolvency (other than to the extent of recovery of sums paid pursuant to the
adjudication). Second, there would be an element of irrecoverable costs. Whilst
this is the ordinary exigency of any litigation, this downside is more acute in
litigation where the upside of success is limited by reason of the opposing
parties' insolvency. Third, the requirement imposing a time limit in which the
responding party must take steps to overturn the adjudication may involve a
party bringing a claim earlier than the Limitation Act 1980 might otherwise
have required it."

147. The undertaking that Mr Constable seems to have had in mind is an undertaking by
the liquidator not to make a distribution for a specified period of time, with
corresponding encouragement to the defendant to bring proceedings against the
insolvent company: see [86] and [87] (3).

148. Where a liquidator intends to declare a dividend or make a distribution, he must

give notice under IR 14.28. The notice will state that the liquidator intends to make a
distribution and must also state the date by which proofs must be delivered. Notice of
an intention to make a distribution must be given to all creditors who have not
proved: IR 14.29. IR 14.30 provides that the notice must state the last date for
proving; and that the liquidator intends to make a distribution within the period of
two months from that date. If a proof is delivered late, the liquidator is not obliged to
deal with it: IR 14.32 (2). If the liquidator makes a distribution, a creditor is not
entitled to disturb it: IR 14.40. This is reflected in section 153 of the Insolvency Act
1986, which gives the court power to exclude a late proof "from the benefit of any
distribution made before [the debt is] proved."

149. That does not, however, extinguish the creditor's claim for any balance. Once a
company goes into liquidation, time ceases to run under the Limitation Act 1980. As
 Mellish LJ explained in Re General Rolling Stock Company (1871-72) LR Ch App 646,
650:

"… the rule is that everybody who had a subsisting claim at the time of the
adjudication, the insolvency, the creation of the trust for creditors, or the
administration decree, as the case may be, is entitled to participate in the assets,
and that the Statute of Limitations does not run against this claim, but, as long
as assets remain unadministered he is at liberty to come in and prove his claim,
not disturbing any former dividend."

150. If, therefore, judgment is given in the company's favour on the basis of a
liquidator's undertaking not to distribute for a particular period of time, a subsequent
distribution may well have the effect of precluding the application of insolvency
set-off if there are insufficient undistributed assets remaining in the liquidation. As
Hoffmann LJ put in Stanhope Pension Trust Ltd v Registrar of Companies [1994] 1 BCLC
628, 633::

"The liquidator is entitled to distribute the assets in accordance with the rules
and such distributions cannot afterwards be disturbed. In re House Property and
Investment Co Ltd, in which a landlord tried unsuccessfully to require the
liquidator of its original tenant company to set aside a fund to pay the rent if
the assignee should default, illustrates all these principles very well. On the
other hand, it is also a rule of winding up that a creditor may submit a proof or
amend an existing proof at any time during the liquidation. The rule that prior
distributions cannot be disturbed means that it may not do him much good,
but in principle he is entitled to make his claim."

151. If the liquidator makes a distribution leaving insufficient assets to meet the
creditor's cross claim, the creditor's claim will necessarily have to be treated as a
separate and independent claim, rather than a reduction or extinguishment of the
company's claim. If, on the other hand, the liquidator is precluded from making a
distribution, it is difficult to see what utility summary judgment has. I do not therefore
consider that Mr Constable's suggested solution is correct. Even if undertakings are
given limited in time, there remains a real risk that that summary judgment will
deprive a creditor of his right to security.

152. At [31] and [32] Lord Briggs compared the process of adjudication and the
liquidator's assessment of a proof (including his assessment of any asserted set-off).
Under IR 14.8 if a creditor is dissatisfied with the liquidator's decision in relation to
his proof, he has a right of appeal to the court. But that appeal must be brought
within 21 days: IR 14.8 (2). On an appeal, the court may decide the issue itself (if
necessary with the aid of disclosure and cross-examination): Financial Services
Compensation Scheme Ltd v Larnell (Insurances) Ltd [2006] QB 808 at [11]; Re BCCI (No
6) [1994] 1 BCLC 450; Law Society v Shah [2007] EWHC 2841 (Ch), [2008] Bus LR
1742. Alternatively, it may permit separate proceedings to be taken (either in court or
by arbitration) to establish the creditor's entitlement: Cosco Bulk Carrier Co Ltd v
Armada Shipping SA [2011] EWHC 216 (Ch), [2011] 2 All ER (Comm) 481. But
importantly, if a creditor fails to appeal within the stated time against a liquidator's
decision, he cannot thereafter challenge that decision or assert his claim by way of
set-off: BCCI v Habib Bank [1999] 1 WLR 42. There is, therefore, a mechanism within
 the Insolvency Rules for a liquidator's decision on a proof to become final. There is
no equivalent for an adjudicator's award. Although in some respects, the processes are
similar, there is, therefore, a very significant difference between the two.

153. As Lord Briggs pointed out, there is considerable procedural flexibility in the
conduct of a liquidation. The flexibility should be used to ascertain the net balance
(one way or the other). In my judgment, it is only once the net balance has been
ascertained, by whatever are the appropriate means, that judgment should be entered.

Note 1 I acknowledge that the parties consented to the adjudicator’s repeated requests for
an extension, but it is always difficult for either party to refuse such requests once an
adjudication – with all its attendant costs and effort - is up and running. The mere fact that
this adjudication took so much longer than the statutory process envisages could be said to
support the proposition that, just because construction adjudication is quick and cheap, it
does not make it an appropriate dispute resolution method in every case. [Back]

Note 2 I note that Mr Constable was the deputy judge who decidedMeadowside. [Back]

Note 3 This is discussed in greater detail in Section 9 below. [Back]

Note 4 The average time for the conclusion of a two party action of this kind in the TCC is
about 15 months. [Back]

Note 5 Much of this analysis would also apply to a payment into an escrow
account. [Back]

Note 6 What he actually said was: “it would be possible to ask Thomas Miller to put in
place a security bond”. [Back]

Note 7 I am afraid that that is JDC/HJ’s approach (outlined in paragraph 35 above) in

action. [Back]

Note 8 The figure was asserted, without evidence, in JDC’s lengthy post-hearing
submissions where it again had nothing to do with the question that the judge asked the
parties to address. [Back]