When everything you touch does not turn to gold: TCC guidance on costs security for disputes with insolvent contractors

In Midas Construction Limited (In Liquidation) v Harmsworth Pension Funds Trustees Limited [2025] EWHC 1122 (TCC), Martin Bowdery K.C. gave helpful guidance regarding the security which should be provided in disputes with insolvent contractors.

Background

Midas Construction Limited was engaged by Harmsworth Pension Funds Trustees Limited as a design and build contractor for a student accommodation and affordable housing development on Unity Street, Bristol. The terms and conditions of the contract were the JCT Design and Build Sub-Contract 2011 as amended. After Midas Construction was placed into administration, a dispute arose regarding what sums, if any, were payable to it following completion of the works.

Following two consecutive adjudications, Midas Construction obtained a decision that it was owed c.£1.5 million by Harmsworth in connection with the Unity Street project. Harmsworth refused to comply with this award, stating that Midas Construction was liable for the costs of remedying significant defects identified on another project. This cross-claim was rejected in a third adjudication between the parties.

Midas Construction then raised an action in the Technology and Construction Court seeking enforcement of the adjudicator’s award of c. £1.5 million.

A preliminary issue in this enforcement action was whether there was adequate security for the costs that Harmsworth would incur should it raise another court action seeking final determination of its dispute with the insolvent contractor.

Applicable Legal Principles

Following consideration of Judge Partfitt’s judgment in Styles & Wood Limited (in administration) v GE CIF Trustees Limited [2020] EWHC 2694 (TCC), Martin Bowdery K.C. stated that when assessing the appropriate amount of security for the costs of final proceedings, a court must consider:

• the actual issues to be determined in the final proceedings;
• the work already undertaken in adjudication and elsewhere; and
• how previous work may result in a cost saving in comparison with an action where witness evidence and expert evidence are being gathered for the first time.

Martin Bowdery K.C. noted that the security should reflect “the likely recoverable costs rather than likely incurred costs” and that courts should “be receptive to an incremental approach to adjust or increase security as required”.

Alternative Approaches proposed by the Parties

Midas Construction asserted that:

• in final proceedings, the payment dispute on the Unity Street project should be determined first and then the cross-claim advanced by Harmsworth; and
• consideration of the appropriate security for the cross-claim should be deferred until a later stage.

Harmsworth criticised this proposal, stating that this was an attempt “to constrain and restrain the Defendant’s opportunity to advance their claims as they see fit” and that security should instead be provided to allow Harmsworth to bring all its claims as it sees fit.

Decision

Martin Bowdery K.C. referred to the decision of Mr Justice Constable in Meadowside Building Developments Ltd (in Liquidation) and 12-18 Hill Street Management Company Ltd [2019] EWHC 2651, where he observed that:

“As near as possible, the safeguards must seek to place the responding party in a similar position to if the company was solvent.”.

Martin Bowdery K.C. accepted Harmsworth’s contention that the “imposed staging of the bringing of claims would be purely a function of Midas’s insolvency” and determined that it would be “wrong and unfair” for Midas Construction to use the dispute regarding security as a means to dictate how Harmsworth could present its claim against it.

Martin Bowdery K.C. then considered the witness statements produced by the parties’ solicitors in respect of the likely costs of both aspects of the claim, as summarised below:

Martin Bowdery K.C., being in the “not uncommon position” where one party’s estimate is too high and the other too low, ordered that security of £550,000 be provided, being £150,000 for the Unity Street dispute and £400,000 for the cross-claim.

When making this decision Martin Bowdery K.C commented that he was “comforted” by the fact that Harmsworth had the right to seek further security if his decision is an underestimate of the likely recoverable costs.

In the current economic climate, it is likely that disputes between insolvent contractors and employers will become all too common and that the courts across the UK will require to refer to decisions such as this to guide them in assessing the appropriate level of security which should be provided.