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Escaping adjudication by threatening insolvency won't work

Mark James

Fresh case reminds firms that preventing adjudication enforcement by threatening insolvency will likely backfire.

In the recent judgement of Bernhards Sports Surfaces Ltd v Astrosoccer4u Ltd [2017] EWHC 2425 (TCC)Mr Justice Coulson regarded the events of the case as “completely bogus” and involving correspondence he described as “breathtakingly rude”.

The resulting decision should remind the construction industry that attempts to escape adjudication enforcement by threatening insolvency proceedings will not be looked at favourably.

‘Breathtakingly rude’ conduct

The defendant, Astrosoccer4u, served a notice of intention to appoint an administrator shortly before a hearing to enforce an adjudicator’s decision.

Bernhards Sports Surfaces, nevertheless, continued with its application to enforce the adjudicator’s decision. It pursued enforcement action against Astrosoccer4u as the sum decided by the adjudicator remained payable.

The conduct of Astrosoccer4u remained under constant scrutiny throughout the hearing and was commented on heavily by Mr Justice Coulson. The solicitors for Astrosoccer4u, in a particularly threatening letter to the solicitors of Bernhards, said they wanted to pursue mediation, despite an undisputed sum being owed to Bernhards.

The letter went on to state: “If not, our client will enter an insolvency process prior to the hearing and your client will then face a claim from the insolvency practitioner in respect of the defects to the pitch.”

It concluded: “You will get nothing then. Goodbye.“ This was the final straw that led Mr Justice Coulson to the conclusion that the solicitors for Astrosoccer4u had been “breathtakingly rude” and had perhaps even breached solicitor conduct rules in attempting to assist a client to avoid paying a debt.

Insolvency as abuse of process

Bernhards’ solicitors’ response highlighted that this was a clear intention to use insolvency procedures as an abuse of process. They went on to state that this letter was “a clear threat that unless the claimant embarks on a course of action which does not involve him getting his money, the insolvency procedure will be used”.

Mr Justice Coulson rejected these tactics as a method of attempting to prevent the enforcement of an adjudicator’s decision, which was unsurprising because he also sat on the recent case of South Coast Construction Ltd v Iverson Road.

South Coast Construction was in receipt of an adjudicator’s decision, much like Bernhards. The other party in the case, Iverson Road, issued three notices of intention to enter into administration, with each notice deliberately intended to impose a 10-day moratorium upon the court proceedings. Each notice was served at the court only days before the hearing.

Mr Justice Coulson had to decide whether to allow enforcement proceedings to continue and, in South Coast Construction, he firmly ruled that the court could and should exercise this discretion. He held that adjudication is a distinctive process from the court procedure, which should not be the subject of attempts to escape enforcement.

‘Rude’ conduct won’t work

The conclusion from the case is evident and Bernhards Sports Surfaces reaffirms the decision in South Coast Construction: the courts will not look favourably on attempts to use a moratorium imposed by the Insolvency Act to prevent adjudication enforcement.

A party who has committed to the adjudication procedure cannot simply threaten insolvency proceedings to prevent enforcement of any adjudication award. Furthermore, the conduct of a party’s solicitors will be inherently considered.

The conclusion of the Astrosoccer4u case was a judgement of £176,000 for the claimant. Mr Justice Coulson also ruled the defendant liable for £8,000 to cover the adjudicator’s fees.

The result just goes to show that rogue tactics and ‘rude’ conduct will have overarching implications for the party at fault.

Mark James is a partner – dispute resolution at Coffin Mew

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