This Court of Appeal case follows on from the Bresco case, Meadow and John Doyle Trial Cases. This case clarifies the security requirements for insolvent plaintiffs and puts an end to the belief of any insolvent company in its right to the enforcement of an arbitral award by way of summary judgment.
John Doyle Construction Limited (in liquidation) (“JDC“), assigned his last account receivable to Henderson Jones (“HJ“). JDC obtained a hammer price (the “Award“) against Erith Contractors Limited (“Erithâ) And JDC sought to enforce the Award by summary judgment. The trial judgment concluded that the Award could not be enforced because JDC failed to provide adequate security for Erith’s costs if Erith made a claim for reimbursement based on her counterclaim (the “Decision“).
JDC appealed the decision on the following three grounds:
that the judge should have concluded that the liquidators had proposed to Erith to pay a sum into an escrow account or to the court and that this constituted a sufficient guarantee;
that the act of compensation (in addition to the ATE insurance policy) constituted adequate security; and
that the judge erred in holding that insolvency rule 6.42 (“all costs, fees, charges and other expenses incurred in the course of the liquidation shall be treated as the expenditure of the liquidation”) did not provide a adequate guarantee to Erith.
The judgment of the Court of Appeal
Lord Coulson reviewed the trial judgment and dismissed JDC’s three grounds of appeal as follows:
With respect to ground 1, Lord Coulson considered that there had not been a “clear and unequivocal” offer from the liquidators for Erith to pay money into an escrow account or to the bank. court. He also found that the liquidators could not have done so as it would have contradicted the agreement between the liquidators of JDC and HJ that any money paid by Erith will be paid to HJ.
Regarding Ground 2, it was found that the Indemnity Act was not adequate as there was no evidence (such as a letter) that a specific insurer was willing to provide Erith a specific act of indemnity (vs an act / generic), as a guarantee of a prescription for Erith’s costs.
Regarding ground 3, it was noted that rule 6.42 gives preference to legal costs incurred by liquidators during the liquidation. The court held that while rule 6.42 would of course cover the expenses of liquidators if they made a new claim; he wouldn’t cover the costs if Erith sued and obtained a costs order against JDC.
Can an insolvent plaintiff obtain summary judgment by decision of an arbitrator, regardless of the set-off and counterclaim of the paying party.
Lord Coulson went on to address a more fundamental question of whether or not “the insolvent company is entitled to summary judgment to enforce an arbitrator’s decision, regardless of the lack of a final decision on the set-off and the other party’s counterclaim. “
On this point, the court determined that when the claim for insolvency compensation between the insolvent company and the other party has not been definitively determined, either by agreeing that an arbitrator can do so, or otherwise, the insolvent plaintiff is not entitled to summary judgment.
The ruling demonstrates that for a court to be prepared to issue summary judgment to an insolvent company in order to enforce an arbitration award, there must be a thoughtful, clear and unequivocal guarantee for costs in place.
However and more importantly, it is now clear that an insolvent business is not entitled summary judgment to enforce an arbitral award, unless the insolvency claim has been finally determined, by agreement or otherwise. It remains to be seen whether this latest edition of insolvent party cases will open or close the floodgates to more claims on behalf of insolvent parties.