Applying Bresco: Security at the Forefront

Published 21 diciembre 2020

As reported in our August Construction Risks Newsletter, the Supreme Court handed down its decision in Bresco Electrical Services Ltd (in Liquidation) v Michael J Lonsdale [2020] UKSC 25 on 17 June 2020.

The TCC has now handed down its first two judgments applying Bresco in Styles & Wood (in Administration) v GE CIF Trustees [2020] EWHC 2694 (TCC) and John Doyle Construction Limited (in liquidation) v Erith Contractors [2020] 2451 (TCC), with differing outcomes for the respective claimants.

Background

Both cases concerned applications to enforce an adjudicator’s award with the following backgrounds:

• the underlying dispute in Styles & Wood related to a property development in Manchester. The Claimant had commenced Adjudication Proceedings on 14 February 2020 and went into administration later that month. In April 2020, the Adjudicator awarded the Claimant c. £700,000 plus VAT and Interest. The Defendant resisted payment of the Award on the basis that it did not accept the adjudicator’s decision and it intended to commence proceedings for a final account.

• by comparison, in John Doyle Construction, the underlying dispute related to landscaping works undertaken by John Doyle Construction (JDC) at the Olympic Park in London before the 2012 Olympic Games. JDC entered administration in June 2012, entering liquidation in June 2013. JDC started adjudication proceedings against the Defendant in January 2018 for sums JDC claimed it was owed from its Final Account. The Adjudicator awarded JDC c. £1.2million including VAT and interest.

Styles & Wood

The key issue in Styles & Wood was whether an ATE policy covering up to £200,000 of the Defendant’s potential arbitration costs offered sufficient protection to the Defendant if the adjudication award was enforced. The Defendant claimed it would incur between £800,000 - £1,000,000 in arbitration fees, without any reasoned breakdown for their fees, and as such the ATE policy would provide inadequate security.

HHJ Parfitt provided some commentary on Bresco whilst allowing the Claimant’s application to enforce the adjudicator’s award. However, the Judgment is clear that in determining whether the security offered by an ATE policy is adequate, the Court will undertake a reasoned consideration of the costs involved in any potential proceedings.

The Court also provided useful commentary in respect of the ring-fencing of funds, finding that whilst the undertaking offered by the Administrators was largely adequate, it should be extended to cover the end of any appeal process.

John Doyle Construction

The issues in John Doyle Construction involved a litigation funder.  

In providing his Judgment, Mr Justice Fraser undertook a thorough analysis of both Bresco and Bouygues (UK) Ltd v Dahl Jensen (UK) Ltd [2000] EWCA Civ 507. The five-step test considers whether:

1. the dispute in respect of which the adjudicator has issued a decision is one in respect of the whole of the parties’ financial dealings under the contract, or simply one element of it;
2. there are mutual dealings between the parties that are outside the contract under which the adjudicator has resolved the particular dispute;
3. there are other defences available to the defendant that were not deployed in the adjudication;
4. the liquidator is prepared to offer undertakings, such as ring-fencing the enforcement proceeds, and/or where there is other security available; and
5. there is a real risk that the summary enforcement of an adjudication decision will deprive the paying party of security for its cross claim.

Fraser J continued by stating that summary judgment will be available to a company in liquidation seeking to enforce an adjudicator’s award when:

a) the adjudicator’s decision has resolved (or taken into account) all the different elements of the overall financial dispute between the parties;

b) mutual dealings outside the contract, and other defences. will be taken into account by the court in the application, if they were not taken into account by the adjudicator; and

c) there is no real risk that summary enforcement of the adjudicator’s decision would deprive the paying party of security for its cross-claim.

As in Styles & Wood, the most important consideration of the Court came to whether the defendant was being offered adequate security by the claimant. By contrast to Styles & Wood, the liquidators of JDC offered security through a letter of intent and an ATE policy.

In dismissing the application, Fraser J stated that the arrangements suggested by JDC were not comparable to the mechanisms considered by Lord Biggs in Bresco.

Implications for the Industry

Although the application of Bresco is in its infancy, it appears that one of the first issues will be the adequacy of security available to the defendant from the claimant’s insolvency practitioners. The Court’s preference appears for this security to be offered by way of an undertaking and supported by an ATE policy in respect of the defendant’s potential costs of bringing the dispute to a financial resolution. However this may develop further as Bresco is applied in future cases.