The adjudications
At the time of issuing proceedings against Harmsworth, Midas was in administration. Harmsworth terminated the Contract with Midas due to its insolvency. Subsequently, Midas brought adjudication proceedings against Harmsworth, seeking a declaration that Harmsworth was obliged to issue a statement of payment under Clause 8.7.4 of the Contract (the "First Adjudication"). In the First Adjudication, Midas disputed the sum that Harmsworth said had been paid to Midas and argued that it was owed money. The Adjudicator decided in favour of Midas and ordered Harmsworth to pay £1,551,528.00.Midas once again brought adjudication proceedings (the "Second Adjudication"). Midas sought a declaration that no sums were owed to Harmsworth under this other building contract. Again, Midas succeeded with the Adjudicator finding in its favour.
Harmsworth still refused to pay. Consequently, Midas sought to enforce the First and Second Adjudication in the Technology and Construction Court ("TCC") by way of a summary judgement. Harmsworth opposed, arguing inadequate security and raising a champerty objections (although the latter objection was not pursued too strenuously).
Key issues under consideration
The champerty argument was dismissed by the Court entirely. The main question left for the TCC to consider was whether Midas, as a company in administration, could enforce an Adjudicator's decision and on what basis.Harmsworth relied upon the decision in Meadowside Building Developments Ltd (in liquidation) and 12-18 Hill Street Management Company Ltd [2019] EWCH 2651 (TCC) ("Meadowside"). The Meadowside decision established safeguards which aim to place the solvent responding party in a position as close as possible to where they would be if the claimant were solvent. The Judge accepted and applied this framework. It was noted that while full equivalence may not be achievable, security for the adjudicated sum and for potential litigation costs was a necessary precondition to enforcement
Midas sought to argue that security should be assessed in stages, with Midas providing sufficient security to cover the final determination of the issues in the First Adjudication only; on a later date, the security for the final determination of the Second adjudication would be provided.
The TCC agreed with Harmsworth that this was an attempt by Midas to stage security and that litigation should not be constrained by Midas' insolvency. It considered that it would be incorrect to dictate how Harmsworth intended to pursue its claims and that appropriate security should be provided. It was decided that the correct approach was to assess the level of security needed to enable Harmsworth to seek final determination of all issues in a single action.
Both parties then provided the TCC with detailed calculations and submissions. The Judge found both sets of figures to be extreme. The sums provided by Midas were too low (£55,000 for final determination of the First Adjudication and £258,000 for final determination of the Second Adjudication) whilst the sums provided by Harmsworth were too high (£568,616 and £767,105 respectively).
The Judge went on to exercise his own judgement to fix security at £150,000 for the First Adjudication and £400,000 for the Second Adjudication. In coming to this conclusion, the TCC considered that both parties would need to review both Adjudications and that there may be a requirement for multiple witnesses' evidence on a range of issues such a quantum and timing.
Key takeaways
Several important points arise from this case:
- The key principle in Meadowbank was reinforced i.e. safeguards are to be put in place for responding parties to claims raised by insolvent claimants, in order to place responding parties in as close a position as possible to the position they would be in if the claimant were solvent.
- An insolvent claimant will not be allowed to choreograph its solvent opponents litigation strategy by staging the provision of security.
- Where an insolvent party has an adjudication decision in its favour and they seek to raise court proceedings and enforce the decision, it will be expected to offer significant security to the responding party.
- Given the significant security required, this will provide insolvency practitioners with food for thought as to whether there is any practical value in referring a dispute to adjudication.
- It is also worth noting that if the original estimates prove insufficient, the paying party has the right to revert back to Court to obtain further security.
If you would like to discuss this article further, please contact Laura McCorquodale and Kate Jordan
