The Supreme Court’s 2020 ruling in Bresco v Lonsdale confirmed there is no outright bar to an insolvent company pursuing adjudication and seeking enforcement of a decision in its favour. The difficulty arises when there’s a genuine cross-claim against the insolvent party, the question being: is it fair for a solvent party to be ordered to pay an adjudicator’s award, only for the insolvent party to be unable to repay if it turns out the cross-claim is valid?

The recent case of Malin Industrial Concrete Floors Ltd v Volkerfitzpatrick Ltd [2024] revisited this troublesome issue. It provides further evidence that the courts will seek to achieve pragmatic solutions designed to resolve the tensions between the construction and insolvency regimes — protecting the legitimate interests of solvent parties while preventing the tactical use of insolvency to avoid payment of an adjudicator’s award.

What happened?

Malin, a flooring subcontractor, became insolvent during the defects rectification period of a project in Doncaster. Its administrators sought release of the final retention, which the main contractor resisted on the basis that it had spent considerable amounts of money remedying alleged defects in Malin’s work and had a substantial cross-claim for more than the retention sum.

Volker didn’t provide evidence of its cross-claim during the adjudication, however, and Malin was awarded payment of the retention. It then applied for summary judgment to enforce the Adjudicator’s decision. Volker opposed enforcement, arguing that Malin’s insolvency meant there would be insufficient security for its cross-claim if Volker handed over the retention sum.

What did the Court decide?

• In what is best described as a compromise position, the Court granted summary judgment in favour of Malin but stayed execution to give Volker time to advance its cross-claim. If after 3 months Malin wasn’t satisfied by the evidence put forward by Volker, Malin could apply to the court to lift the stay.
• Expert reports showed that Volker’s cross-claim was substantial enough to warrant further investigation. The Court was satisfied that Volker was not using Malin’s insolvency as a tactical shield to avoid payment of the Adjudicator’s award.

What does this mean?

While this case doesn’t create any new points of law, it further illustrates the difficulties faced by insolvent companies hoping for a fast resolution through adjudication. As much as the Courts favour the robust enforcement of adjudication awards, they will adopt a cautious approach where there are cross-claims against the insolvent party, using measures like stays to balance the interests of both parties.

Parties must prove they have a genuine cross-claim to persuade a Court to grant a stay of execution, however. While there’s a relatively low threshold for demonstrating a claim, the Court will not allow  parties to use insolvency as a tactical device to avoid payment of an Adjudicator’s award.

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This article contains information of general interest about current legal issues, but does not provide legal advice. It is prepared for the general information of our clients and other interested parties. This article should not be relied upon in any specific situation without appropriate legal advice. If you require legal advice on any of the issues raised in this article, please contact one of our specialist construction lawyers.

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