Background
In 2018 Midas Construction Limited (In Liquidation) ("Midas") entered into a contract based on the JCT Design and Build Sub-Contract 2011("the Contract") with Harmsworth Pension Funds Trustees Limited ("Harmsworth"). Midas was engaged as Harmsworth's contractor to carry out "The design and construction of the Shell and Core, Fit Out and External Works of a new build student residential, private residential, and affordable housing development" ("the Works").
The Contract was terminated due to Midas' insolvency. Clause 8.7.4 of the Contract provided a mechanism for determining whether sums were due to/owed by Harmsworth, in the event that Midas became insolvent. Midas brought and succeeded in an Adjudication for a declaration that Harmsworth was obliged to issue a statement of payment under clause 8.7.4. Midas disputed the sums provided by Harmsworth under its Clause 8.7.4 statement and referred the dispute to another adjudication.
By a decision dated 22 June 2023 (the "Decision"), the Adjudicator decided that Harmsworth was to pay Midas the sum of £1,551,528.00 excluding VAT and interest (the "Sum"). Harmsworth did not comply with the Decision and refused to make payment. Harmsworth contended that it was owed money by Midas under a separate contract ("the Print Hall Contract"). Midas then brought a third adjudication seeking a finding that no sums were owed to Harmsworth under the Print Hall Contract. The Adjudicator decided in favour of Midas.
Prior to enforcement proceedings being raised, Midas had engaged with Pythagoras Capital ("Pythagoras") to collect debts owed by Harmsworth to Midas. Following the decision in the third adjudication, Pythagoras had asked Harmsworth to agree to enforcement of the second adjudication subject to a stay of three months in which Harmsworth can commence Final or Overturning Proceedings. Harmsworth did not agree with the proposal.
The dispute between the parties resulted in a court action heard by the Technology and Construction Court. The crux of the court action was whether Midas, as a company in administration (at that time), could pursue enforcement of an adjudicator's decision and, if so, on what basis.
Insolvent companies not to stage security
Harmsworth raised two points in its defence of the enforcement proceedings. Firstly, Harmsworth argued that there was inadequate security for the cost of final proceedings that it may bring upon enforcement. Secondly, Harmsworth, fairly tepidly, contended the enforcement claim was "champertous" due to Midas' involvement with Pythagoras ('champerty' refers to an agreement where a third party, unconnected to the claim provides financial support or resources in consideration of a share of the subject matter of the dispute, such as property or damages). The Judge did not consider the second point raised by Harmsworth in any depth, finding that the agreement between Midas and Pythagoras was not champertous.
In support of its first line of defence, Harmsworth relied on the decision Meadowside Building Developments Ltd (in Liquidation) and 12-18 Hill Street Management Company Ltd [2019] EWHC 2651 (TCC) ("Meadowside"). The decision in Meadowside establishes safeguards for solvent parties, whereby safeguards must seek to place the responding party in a similar position to that if the company was solvent. Meadowside touches on the differences in litigation, as opposed to adjudication, whereby successful parties can recover costs if successful in litigation.
The Court considered Midas' proposal for the enforcement proceedings under the Contract to go first, and only once concluded for the Court to consider any such Print Hall Works proceedings. In adopting the decision in Meadowside, the Court agreed with Harmsworth in that this was an attempt to stage the security. The Court considered it would be incorrect for Midas to dictate how Harmsworth intends to pursue its claim and that appropriate security should be provided.
How much?
The Court was then tasked with assessing the amount of security which should be provided. In approaching the task, the Court adopted the decision in Styles & Wood Limited (in administration) v GE CIF Trustees Limited [2020] EWHC 2694 (TCC) (Styles & Wood). Given that parties had been involved in adjudications prior to the litigation, the decision in Styles& Wood acknowledges that the Court will give credit to work already done. Therefore, less costs are required than when a matter is pleaded afresh with expert evidence, for example, gathered for the first time.
The Court then assessed the appropriate sums for security in both claims. Parties provided detailed calculations and submissions to the Court, with the Court ultimately finding that the sums provided by Midas were too low, and the sums provided by Harmsworth were too high. The Court ultimately arrived at figures slightly in Midas' favour, ultimately ordering security of £150,000 for the Contract claim and a figure of £400,000 for the Print Hall claim.
Key takeaways:
Key points arising from this case include:
- the decision ultimately reinforces the key principle in Meadowside that responding parties for claims raised by insolvent claimants are to be provided safeguards to place responding parties in as close a position as possible to the position where the claimant company was solvent;
- even where an insolvent company has an adjudication decision in its favour, they will be expected to offer security to their responding party, should they seek to raise court proceedings and enforce the decision; and
- where there are instances of cross-contract claims, the Court will be resistant to insolvent companies dictating how responding parties pursue their claims.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
