Vol 1 (2004) - Issue 6

Article preview

Insolvency: Problems of Statutory Adjudication

Struggling businesses and their advisors need to think long and hard before starting down the road of formal insolvency proceedings, particularly if there is a good chance of quickly recovering monies owing to the business from third parties through statutory adjudication. In this article we briefly summarize the basic elements of statutory adjudication and consider its potential for struggling businesses and those businesses that may already have been forced down the insolvency route.

The Housing Grants, Construction and Regeneration Act 1996 has been with us for sometime now and statutory adjudication is proving overwhelmingly to be the preferred route to resolve disputes in the construction industry. Despite the criticism that it is rough and ready, it is considerably cheaper and quicker than litigation and arbitration. It is tackling disputes before the parties have become too entrenched in their positions, incurred too many losses and saves time, effort and costs in preparing submissions. It has also curbed the expectations of management personnel with regard to the possible levels of recovery. There is no need for the preparation of formal court style pleadings; even so each party still needs to ensure that their submissions are properly and comprehensively pleaded and evidenced in terms of their legal, factual and technical elements. Most disputes can be determined within 28 days from referral and if the decision goes in favour of the struggling business this can be of significant benefit.

An adjudicator’s decision is binding until there is a litigation or arbitration decision that is different. Such latter proceedings are not in themselves an appeal against the adjudicator’s decision but are a fresh action where the matters in dispute are considered without reference to or detailed analysis of or argument over the adjudicator’s decision.

It would seem that the role of the Technology and Construction Courts in the construction industry have been significantly reduced so that a core part of their work is determining applications for summary judgment in relation to the enforcement of adjudication decisions rather than considering cases from first principle. Generally, the courts have firmly stood behind the principle of statutory adjudication and have upheld the majority of adjudicators’ decisions referred to them for summary judgment. However, such enforcement is by no means certain as consideration of the following cases demonstrates:
In Bouygues (UK) Limited v Dahl-Jensen (UK) Limited, Dahl, in whose favour the adjudicator’s decision had been given, had already gone into liquidation. The court considered that, although ordinarily adjudicators’ awards should be enforced, this was no ordinary case. In the event Bouygues were to refer the dispute to litigation or arbitration proceedings for final resolution and if the decision went against Dahl there were justifiable concerns that they would not be able to pay back the sums they were currently seeking to be enforced by the court. As such the court granted a stay of execution against the enforcement of the adjudicator’s decision on the basis that Dahl was in liquidation at the time of the hearing.
Similarly, in Harwood Construction Limited v Lantrode Limited, it was claimed that Harwood was or may be insolvent. Relying on Bouygues, Lantrode submitted it was not appropriate to permit enforcement by an insolvent business as the Insolvency Act and regulations provided the procedure for dealing with the rights of insolvent parties, their debtors and creditors. In respect of Harwood the court were not provided with sufficient evidence so as to confidently determine if they were insolvent. In fact there had been a petition presented for winding up but the hearing was due to take place in the next two weeks. The court were persuaded by the implications of section 29 of the Insolvency Act, namely that liquidation will be deemed to have commenced on the date of the presentation of the petition if a winding-up order was given at the hearing. The court therefore allowed the summary judgment but ordered a conditional stay of execution until the hearing of the petition for winding up. The condition being that such stay would continue to apply if a winding-up order was given but would cease if the petition were dismissed.
However the court was not so convinced by possible insolvency arguments in SL Timber Systems Limited v Carillion Construction Limited. Carillion submitted that there were reasonable grounds for anticipating that SLT may become insolvent because an examination of their accounts showed that they were trading at a loss. As such Carillion submitted that enforcement of the adjudicator’s decision should be refused.