In Balfour Beatty Civil Engineering Ltd v Astec Projects Ltd (In Liquidation) [2020] the Court declined to grant an injunction preventing Astec from pursuing three adjudications against Balfour Beatty in relation to works at and around Blackfriars Station.

Background

The issue of whether or not an insolvent company can pursue recovery via adjudication has been the subject of much debate over recent years. We have seen significant decisions in:

- Bresco v Lonsdale; and Cannon v Primus in which it was found that – whilst an adjudicator may have jurisdiction to make a decision where one party was in liquidation – to permit the adjudication to continue would be “an exercise in futility”.

 - Meadowside (in liquidation) where the Court set out when such adjudications might be of some practical utility – together with three key criteria that would have to be met to enable the adjudication to continue including:

•   The adjudication must determine the “final net position” of the parties (including any cross claims). It cannot, for example, be used in ‘smash and grab’ tactics.
•   The company in liquidation provides satisfactory security in relation to any sum awarded in the adjudication, or any adverse costs orders that might arise on enforcement or subsequent litigation.
•   The agreement to provide funding and / or security is not an abuse of process. 

We now have Astec which appears to be the first time that the Court has applied the criteria in Meadowside and permitted the company in liquidation to continue with the Adjudication.

Astec

Balfour Beatty sought an injunction to stop Astec pursuing three adjudications on three contracts arguing that it failed to meet the requirements in Meadowside; principally on the basis of a comment in that case that the “final net position” could not be determined where

there was more than one contract.

The Court found that was not a fair reading of Meadowside where the Judge was not dealing with the issue of multiple contracts. In this case, it was possible for the “final net position” to be determined as the three adjudications would deal with the entirety of the parties’ mutual dealings.

The Judge went on to consider whether the other Meadowside conditions were made out and whether there were any other directions that would be necessary to make the adjudications compliant. It was held that the adjudications should be permitted to continue on the basis that:

- The parties ensure that the same adjudicator is appointed to deal with all three adjudications;

- The would be a stay of execution for six months following the decision(s) during which Balfour Beatty could elect to commence proceedings to resolve any substantive entitlement in litigation;

-  Astec provide the sum of £750,000 by way of security for ;

 - The ATE policy (under which security for costs was provided) be amended to ensure that it would be available to enforce against in due course.

The implications for the industry

 This case is interesting for a number of reasons:

- It indicates a significant judicial shift from the approach taken in Bresco which suggested that permitting a company in liquidation to pursue recoveries via adjudication would be an “exceptional circumstance”; to the Court now apparently considering what conditions would be required to enable the liquidators (and funders) of such companies to pursue such recoveries via adjudication.

- It provides scope for liquidators (and funders) to seek to exploit this avenue in appropriate cases. This arguably flies in the face of the statutory intention for adjudication to facilitate cash flow and instead opens up potential abuse of the costs-neutral adjudication process as a “cheap assessment service” (as observed in Bresco).

The inevitable challenges that arise from the cost/benefit analysis of pursuing recoveries in this climate and the potential tension with adjudication being used as a vehicle to obtain a “cheap assessment service” rather than to facilitate cash flow will no doubt come into sharper focus in as the industry navigates through the current COVID-19 pandemic and its impact on the economy.

It is perhaps for this reason that the Supreme Court heard an appeal on Bresco over the course of two days on 22 and 23 April 2020. It is hoped that the Judgment (reserved) will provide further clarity for the industry as to how to best tackle these issues going forwards.

We await the next instalment…