It is well established that, in order to avoid the risk of injustice, companies in liquidation are generally barred from pursing contract adjudication proceedings – but are there exceptions to that rule? The High Court considered that critical issue in a case which raised important points of principle.
The case concerned a contract whereby a property management company engaged a building firm to carry out internal and external repair works. Various disputes arose during the course of the contract but, by the time the building firm referred the matter to an adjudicator, it had entered liquidation and had been voluntarily wound up. The adjudication was driven by an agent who had been appointed by the buildings firm’s liquidators with a view to recovering sums allegedly due to it under the contract.
The company argued that, far from owing money under the contract, it had various cross-claims that rendered it a net creditor of the building firm. It played no part in the adjudication, claiming that the adjudicator lacked jurisdiction and that any decision he reached would in any event be unenforceable. The adjudicator nevertheless went on to award the building firm £32,629 and the firm launched proceedings to enforce his decision by way of summary judgment.
In ruling on the matter, the Court noted the fundamental incompatibility between the process of adjudication and the insolvency regime. Enabling an insolvent company to launch adjudication proceedings created an obvious risk of injustice in that the responding party might find itself bereft of any means to enforce any cross-claim it may have. The insolvent company might also suffer injustice by reason of the absence of funds available to a liquidator to pursue debtors.
The Court accepted that there may be exceptions to the rule, for example where an adjudicator finally determines the net position between the parties under a contract. Various forms of security offered by the agent in respect of legal costs and other matters on the face of it went some way to reducing any risk of injustice to the company.
In refusing the building firm’s summary judgment application, however, the Court noted that the agent had made no payment into court, nor had it offered a bank guarantee or bond in order to secure the company’s position. No after the event insurance policy was in place on the date of the application and the agent’s financial position was not such as to give the Court any degree of certainty that its own guarantee provided sufficient security to the company.
