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Balfour Beatty v Astec: court confirms that insolvent company can adjudicate

Posted: 06/05/2020

A recently published decision from the Technology and Construction Court, which examined the widely debated issue of whether companies in liquidation can adjudicate, could have increasing significance over the coming months in light of the Covid-19 pandemic.

In Balfour Beatty Civil Engineering Ltd v Astec Projects Limited (In Liquidation) [2020] 796 (TCC), the court applied the principles set out in Bresco v Lonsdale and Meadowside v Hill Street and, subject to conditions, permitted Astec, a sub-contractor, to pursue three adjudications against Balfour Beatty, despite Astec being in liquidation.

The Court of Appeal in Bresco v Lonsdale had concluded that there is no absolute jurisdictional bar to adjudication where the claimant is in liquidation. However, in many cases such an adjudication would be considered futile and the court would grant an injunction to prevent it from proceeding. The Court of Appeal did however recognise that “exceptional circumstances” could arise. This was developed in Meadowside v Hill Street, in which the court provided further guidance on the conditions to be satisfied. These included the requirement that the adjudication decision covers the final net position between the parties and that satisfactory security is provided.

The case

Astec wished to bring three adjudications against Balfour Beatty over various aspects of work carried out at Blackfriars Station. Three adjudications were required because there were three sub-contracts and no provision for a consolidated adjudication. Following the start of the first adjudication, Balfour Beatty applied to the court for an injunction to restrain Astec from adjudicating because by this time Astec was in liquidation.

Balfour Beatty argued that the fact there would be three adjudications meant that each adjudication would not determine the final net position between the parties. Not surprisingly, the court was prepared to accept the practical reality, which was that, taken together, the adjudications would deal with the entirety of the parties’ mutual dealings. This was not a case in which a relevant aspect of the parties’ dealings was not within the scope of an adjudication provision. The court therefore dismissed this argument, but did impose a condition that the second and third adjudications begin within 21 days.

In respect of security, the conditions ordered by the court included:

  • a six-month stay on the enforcement of any adjudicator’s decisions in Astec’s favour. If within that time Balfour Beatty commenced court proceedings, the stay would remain in place until the conclusion of the litigation. If Balfour Beatty did not commence court proceedings within six months, Astec could seek to enforce the adjudication decisions;
  • Astec would have to provide security for £750,000 to cover any adverse costs orders in the litigation (this was provided through Astec’s ATE insurer). Balfour Beatty could apply for more as the litigation progressed. (The parties had also agreed that Astec would provide security for the adjudicator’s fees); and
  • following close scrutiny of the terms of the ATE policy, it was ordered that an amendment be made to it to provide greater protection to Balfour Beatty in respect of the security for costs.

Points to consider

It is possible that over the coming months, we will see a rise in insolvencies within the construction industry due to the effects of Covid-19. This case confirms that the courts remain supportive of the use of adjudication as a cost effective means of resolving the overall financial position between the parties, even when one is insolvent. In most cases, parties’ accept an adjudication decision, so many will welcome this ruling. Equally, the court’s unwillingness to permit tactical use of adjudication, ie so called ‘smash and grab’ adjudications by insolvent parties, avoids what in the context of insolvency may be considered abusive practices.

For some insolvent companies, the postponement of payment and the requirement for security for costs in respect of subsequent litigation may be prohibitive, but this is part of the balance being struck with the solvent party’s interests. While each case will be dealt with in light of the circumstances, this judgment serves as a useful illustration of what may be expected from an insolvent party seeking to adjudicate. Referring and responding parties can use it as a guide to what to offer and demand.

At the time of writing, the Supreme Court is hearing an appeal in Bresco v Lonsdale, which includes the question of whether there is an absolute jurisdictional bar to adjudication with a company in liquidation. If this aspect of the appeal is successful, it would override the position described above, at least for some types of insolvency procedures. The industry awaits the outcome with interest.

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