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The impact of Insolvency Act proceedings on adjudication enforcement proceedings

  • United Kingdom
  • Construction and engineering

22-11-2017

Summary

The head of the Technology and Construction Court (“TCC”), Coulson J, has given a clear indication, in this case, that he will allow adjudication enforcement proceedings to continue despite a moratorium upon any proceedings under the Insolvency Act 1986 (“IA”). This case is likely to have wide ranging implications in respect of the interplay between the IA and enforcement of adjudicators’ decisions.

Facts

Iverson Road, the defendant, engaged South Coast Construction (“SCC”), the claimant, as contractor for works, which SCC suspended at phase 3 on the basis of non-payment of sums due by Iverson. Iverson proceeded, inter alia, to omit the remainder of the works, which the adjudicator at the following adjudication held as a repudiatory breach of contract. SCC received an award by the Adjudicator of a sum of £861,235.00. Iverson Road failed to pay, and SCC applied to enforce the adjudicator’s decision. In the weeks leading up to the enforcement hearing, Iverson Road issued three notices of intention (“NOI”) to enter into administration, which would impose a moratorium upon any proceedings under the Insolvency Act 1986. SCC applied to continue proceedings to enforce the adjudicator’s decision. The last 10-day moratorium period expired on the day of the hearing and the following day the defendant went into creditors’ voluntary liquidation.

Decision

Even though the moratorium expired on the date of the hearing and rendered the application to continue enforcement proceedings unnecessary, the court held it was desirable for it to issue a decision on the application for permission to continue the enforcement proceedings because the issue may reoccur in the future, the parties devoted much time to addressing this application and the question of costs obliged the court to express a view on the merits of the case.

As per Atlantic Computer Systems (1992), permission to continue the proceedings should not be granted where to do so would frustrate the purpose of administration. The court held that there was no evidence that the purpose of the moratorium, namely to provide assistance to any administrators, would be jeopardised by the court’s decision but rather would assist the administrators’ role by the court settling that dispute. Other relevant factors considered were the proximity closeness of the proceedings to the application, and the parties’ conduct. In relation to the latter, the defendant’s conduct was deemed a “deliberate double game” because it issued serial NOIs containing no evidence about the company’s financial position, failed to inform the claimant or the court about the NOIs, continued to engage in the proceedings despite the moratorium, and waited until the expiry of all 3 NOIs to appoint a liquidator.

Permission to continue proceedings is granted only in exceptional cases (Ronelp Marine v STX OS and AES Barry v TXU EET considered). Coulson J held that proceedings to enforce an adjudicator's decision were different from an ordinary monetary claim, and presupposed a decision on the merits that a sum of money was due and owing as a result of a breach of contract or statute. To that extent they were exceptional. The court conducted a balancing exercise, which came down in favour of permitting the enforcement proceedings to continue.

Comment

Permission to continue proceedings is granted only in exceptional cases, and this case fell under such exceptional circumstances despite the moratorium. Until this judgment, a moratorium triggered under the Insolvency Act 1986 would usually stay any proceedings against the debtor. This case ultimately granted permission to continue enforcement proceedings given the adjudication procedure’s ‘exceptional’ nature and the surrounding circumstances of the case. Coulson J expressed his disapproval of the use of NOIs as a ‘tactic’ to avoid enforcement. The frequency, contents and the timing of the NOIs gave rise to suspicion, however it was the blatant failure to inform the court or the claimant about the NOIs which pre-empted the court to consider questions of fairness and equity in its judgment against the defendant. It is also worth noting that the court warned the defendant about abusing the process, be it by issuing multiple NOIs or drawing on any label (“excess of jurisdiction” or “breach of natural justice”) to challenge an adjudicator’s decision as it may be deduced as “simply scrabbling around to find some argument, however tenuous, to resist payment”.

http://www.bailii.org/ew/cases/EWHC/TCC/2017/61.html