Arbitration Can Rarely Be Enforced In Insolvency | Comment

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The Court of Appeal upheld the judgment of Justice Fraser in John Doyle Ltd (in liquidation) v Erith Contractors Ltd [2020] EWHC 2451 (TCC) and provided helpful advice on what constitutes adequate security in judgment enforcement proceedings when the claimant is insolvent. The judgment also examines whether an insolvent company is ever entitled to summary judgment to enforce an arbitrator’s decision.

Previously, in Bresco vs Lonsdale, the Supreme Court had ruled that insolvent parties could submit a dispute to arbitration, obtain a decision and seek to enforce it against the other party (while recognizing that obstacles remained for the parties. insolvent at the enforcement stage). This decision differed from the approach of the Technology and Construction Tribunal and the Court of Appeal, both of which had concluded that arbitration should not be available to insolvent parties, and that arbitration proceedings could be injunctioned on this basis.

First case

At trial in John Doyle, Fraser J. set out the principles that a court will apply when considering an application for enforcement. Here, John Doyle’s claim had been sold to Henderson & Jones (a funder), which was substantially involved in the adjudication and execution proceedings, including with respect to securing security arrangements. , in the form of a post-event agreement (ATE) policy.

During argument, John Doyle proposed two other means of security. At first instance, the court ruled that the guarantee was insufficient – mainly the ATE policy, which was found to be insufficient on the basis of the exceptions it contained – and summary judgment was refused.

The judge held that, in a request for enforcement by an insolvent plaintiff, the factors the court should consider include whether the adjudication dealt with all the issues in dispute between the parties (whether under the same construction contract or not), and whether sufficient security is advanced in the event of a successful challenge to the arbitrator’s decision.

Court of Appeal

The Court of Appeal had little difficulty in upholding Justice Fraser’s conclusions as to the insufficiency of the guarantee offered by John Doyle. John Doyle’s case was that although the judge rejected the primary guarantee offered (the ATE policy), he did not consider the secondary and tertiary guarantee offers which in John Doyle’s case , had been proposed as alternatives during the oral debates. argument or mentioned in testimony during the hearing.

Lord Justice Coulson ruled that the undertakings or guarantees of insolvent plaintiffs must be “clear, proven and unequivocal”

Lord Justice Coulson ruled that the undertakings or guarantees of insolvent plaintiffs must be “clear, proven and unequivocal”. His comments provide useful advice to parties offering a guarantee and serve as a warning to have these provisions in place before they appear in court.

The judgment includes important observations on whether an insolvent company ever has the right to summary judgment to enforce an arbitrator’s decision. The judges agreed that, because an arbitrator’s decision is provisional, he cannot definitively determine the net balance between the parties even when the arbitrator has considered all relevant claims and counterclaims. In considering the conflict between adjudication and insolvency rules, Lord Justice Coulson indicated that even when the court grants summary judgment (which it will only do on rare occasions), the default position will be to order a stay of execution.

In conclusion

Summary judgment will only rarely be granted to an insolvent plaintiff seeking to enforce an arbitrator’s decision without also staying that judgment. In addition, in the unusual circumstances where the court might render a judgment, the guarantee offered must be clear, proven, unequivocal and in place before the court hearing.

Dr Julian Critchlow is Head of Legal Practice at Costigan King


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