Meadowside Building Developments Ltd (the “Claimants”) applied for a summary judgment against 12-18 Hill Street Management Company Ltd (the “Defendants”) in order to enforce a decision by an Adjudicator for the sum of £32,629.63. The Claimants were a company in liquidation  both at the time of the adjudication and when applying for the summary judgment. The Claimants’ Liquidators appointed Phytagoras Capital Ltd (“Phytagoras”) to take over the pursuit of the debt. The Defendants did not substantively take part in the adjudication on the basis that the Claimants were a company in liquidation and that the Adjudicator lacked jurisdiction as the provisions in the Insolvency Rules take precedence.

The Judge referred to the Court of Appeal case of Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Limited [2019] EWCA Civ 27, where it was held that  there may be ‘exceptional circumstances’ in which a company in insolvent liquidation could refer a claim to adjudication, succeed in that adjudication, obtain summary judgment and avoid stay of execution but that it was for the court to determine whether such circumstances arise. 

The Judge in consideration of the judgement in Bresco held that exceptional circumstances will arise where: (i) the adjudication determines the final net position between the parties; and (ii) the Liquidator provides appropriate security in relation to the respondent’s adjudication award, costs and possible cross-claims.

However, in Meadowside, despite the fact that adjudication dealt with the parties’ final account and  security was provided, the Judge highlighted that exceptional circumstances have to be decided on a case by case basis. The Judge observed that the funding agreement did not satisfy the requirement of appropriate security as a third party providing security, that is Phytagoras, did not disclose some key details of the funding agreement such as terms of the agreement, their ability to provide security, relationship between the parties or percentage recovery agreed with the Liquidator. Moreover, as the funding agreement was drafted according to the Damages Based Agreements Regulations (2013), the court has highlighted that the funding agreement was champertous (an illegal bargain) as the funding party provided the Liquidator with funds in return for a share of the proceed from the adjudication award. This has rendered the agreement to be unenforceable and summary judgment was not granted.

The decision in Meadowside provides further clarification for liquidators and demonstrates that Insolvency Rules do not necessarily take precedence and that their claims can be successfully referred to adjudication.  It also provides useful guidance that in adjudication or enforcement proceedings, it is for the defendant to demonstrate that there was an element of bad faith or unreasonableness.