Balfour Beatty brought an application seeking the injunction of three adjudications that was sought by Astec. Astec engaged in three sub-contracts with Balfour Beatty, the main contractor, for various aspects of work to and around Blackfriars Station. The works began in 2010, but in April 2014 Astec went into administration and then liquidation in October 2014. Nothing happened after liquidation, until Astec sent a claim letter on 24th December 2019 and a first notice of adjudication on 24th January 2020.
Two issues were dealt with by Mr Justice Waksman in the Technology and Construction Court:
First, does the fact that there are three liquidation adjudications dealing with three sub-contracts prevent the adjudications taking place?
Secondly, should the adjudications proceed despite Astec being an insolvent company?
Rule 4.90 of the Insolvency Rules 1986 requires the sums due between creditor and company to be set off against each other. Thus, it envisages that the account will be taken and the balance decided in one set of proceedings where the result would be final and binding.
The Court of Appeal in Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd  EWCA Civ 27 established that it was “an exercise in futility” to permit an adjudication where a company was insolvent because a decision against the insolvent company will be unable to be enforced where there are insufficient funds. Additionally, the adjudication could never reach a position where the ultimate mutual account could be reached due to the interim nature of adjudications.
However, the Court of Appeal emphasised that there is no absolute jurisdictional bar to the holding of an adjudication at the instance of an insolvent adjudication claimant. There may be exceptional circumstances that allow for an adjudication despite a party being insolvent.
In Meadowside Building Developments Ltd (In Liquidation) v 12-18 Hill Street Management Co Ltd  EWHC 2651 (TCC), Adam Constable QC specifically provided circumstances where there would be more likelihood that an adjudication can take place (known as the “Meadowside exceptions”). He considered these as exceptions, rather than the rule. In summary, the circumstances were that:
- The adjudication brought or to be brought determines the final net position between the parties.
- Satisfactory security is provided in respect of any sum awarded in the adjudication, so that it is repayable should the responding party successfully overturn the decision; and of adverse order for costs concerning any unsuccessful application to enforce the adjudication decision or the subsequent litigation/arbitration, in which the responding party is seeking to overturn the adjudication decision. What is satisfactory as security in form, duration and amount is a question on the facts in the ordinary way and may be provided incrementally.
On the first issue, Waksman J stated that there was nothing in Bresco which indicates that due to there being three adjudications dealing with three sub-contracts means that they should not take place at all. Compliance with rule 4.90 was possible because “if there were three adjudications and each one produced a net result in favour of one or other of the parties, then by netting those results off against each other one would arrive at a complete and comprehensive account of the parties’ mutual dealings” [para 12].
The decisions would not be taken in a piecemeal fashion. As Waksman J stated at paragraph 18: “Even on the basis of three separate adjudications, if Astec was successful and sought to enforce, there would then be three separate applications for summary judgment. It is inconceivable that a judge on that occasion would do anything else other than order what the net result should be.” Thus, the court would simply be doing “a fairly straightforward mathematical calculation.” Additionally, as all the sub-contracts were construction contracts, the adjudicator had jurisdiction to consider them all.
On the second issue, as Astec provided security through an insurer, and the adjudications determined the final net position between the parties under the three sub-contracts, the Meadowside exceptions were met. Therefore, the injunction was refused.
However, whilst Waksman J found no fatal jurisdictional objection to the three adjudications proceeding, or that any exercise of discretion must inevitably prevent them from occurring, conditions were placed in an Order for the court to be properly satisfied that with the arrangements. These included that:
- Astec would issue the remaining two adjudication notices within 21 days, with the same adjudicator appointed to deal with all three adjudications – or if the parties agreed, for the adjudicator to deal with all three contracts in one adjudication – and those adjudications to be dealt with together over an 84-day period (allowing 28 days for each one).
- Balfour Beatty had six months from the adjudicator’s decision/s to issue court proceedings to seek a different result. Astec cannot seek to enforce the adjudicator’s decision/s during that period or while any litigation proceedings are ongoing.
- Astec would provide security of £750,000 (three times the security of £250,000 Astec had in place) and subject to Balfour Beatty having the right to seek further security if the £750,000 appeared to be insufficient.
- Rewording of Astec’s insurance policy.
Balfour Beatty v Astec demonstrates a more supportive role for liquidation adjudications. As Waksman J put it at paragraph 20, “The rationale for the adjudications here, in the first instance, is to get a relatively cheap and admittedly rough-and-ready decision on these very familiar types of dispute without the immediate and heavy costs of entering into litigation.” Therefore, this case is encouraging for liquidators who seek the advantage of pursuing a claim which provides authoritative clarity when distributing the sums due to the relevant creditors. However, this advantage is imposed with a heavy burden of multiple conditions, including substantial security costs, in order to ensure the adjudications were not pointless or an exercise of futility. Insolvent companies must be aware of the need to meet this heavy burden should they wish to pursue a liquidated adjudication.
Additionally, it is important to note that as of April 2020, Bresco was brought to the Supreme Court and as such the law may alter, which could affect the rationale of this case and the Meadowfield exceptions. Let’s watch this space…