Adjudication, Liquidation and the Supreme Court

Adjudication, Liquidation and the Supreme Court

Blaser Mills Law has been successful in a landmark appeal to the Supreme Court, which has clarified the law with regard to the ability to refer matters to Adjudication irrespective of the solvency of the parties.

In June, we announced that Commercial Litigation Partner, Jackie Ray and Lawyer, Nina Bhatti were successful in all points of the Appeal to the Supreme Court on behalf of Bresco Electrical Services Ltd (in liquidation) against Michael J Lonsdale (Electrical) Ltd.

The decision unanimously upheld the right of companies in liquidation to commence Adjudication proceedings, reversing the Court of Appeal decision preventing a party in liquidation from bringing an adjudication. This decision is significant because many construction disputes are resolved by adjudication.

Background of the case

In 2014 Bresco and Lonsdale entered into a contract whereby Bresco agreed to perform sub-contract electrical work for Lonsdale. However, in December 2014, Bresco left the site without completing the work with both companies claiming the other had wrongfully terminated the contract.

In 2015 Bresco went into liquidation. Then in October 2017, Lonsdale made a claim against Bresco for wrongful termination of the contract and claimed the costs of completing the works. However, Bresco maintained that it was Lonsdale that had actually terminated the contract and therefore, Lonsdale owed them money. Bresco referred its claim to adjudication seeking payment for work done and damages for breach of contract. However, Lonsdale sought an Injunction to prevent the Adjudicator rendering its decision, stating that Adjudicator had no jurisdiction as Bresco was insolvent.

Bresco appealed the Order granting an Injunction to the Court of Appeal.  The Court of Appeal stated that the only claim that could be enforced was a claim for the net balance arising out of an insolvency set-off.  The set-off occurred automatically when Bresco entered Liquidation and that the Adjudicator did not have jurisdiction over the matter.

The decision

On appeal from the Court of Appeal, the Supreme Court confirmed that there was no absolute jurisdictional bar preventing an insolvent party commencing and pursuing an adjudication. Therefore, the cross-appeal by Lonsdale on jurisdiction failed and was dismissed.

The Supreme Court’s decision allows all entities, irrespective of their solvency to commence adjudication.

In the decision of the five Law Lords sitting in the Supreme Court, the decision of the Technology & Construction Court in Meadowside Building Developments Ltd (in liquidation) v 12-18 Hill Street Management Company Ltd (2019), which Jackie Ray and Nina Bhatti also acted on, was considered. In particular, they considered what constitutes “exceptional circumstances” where a company in liquidation would be permitted to enforce an adjudicator’s decision, these include:

  1. The adjudication determines the final net position between the parties under the relevant contract.
  2. Satisfactory security is provided in respect of any sum awarded in the adjudication decision or any adverse cost orders.

The decision in Meadowside was also referenced in the case of Balfour Beatty Civil Engineering Ltd v Astec Projects (2020) (in liquidation). In this case, the Court refused to grant an injunction to restrain three adjudications relating to three sub-contracts on the same project. They found it fell within the meaning of exceptional circumstances. If there were three adjudications and each produced a net result in favour of one of the parties this would determine the final net position between the parties. There was also a satisfactory offer for security for costs. The Court required that the three adjudications be heard by the same Adjudicator and some amendments required to the ATE insurance policy.

What is the effect of these cases?

These cases clarify the statutory and contractual right to adjudication despite the insolvent state of the referring party.

With the severe impact Covid-19 has had on the construction industry, the Judgment is well-timed for those facing insolvency because of the pandemic.

If you would like further information on the above, or on Commercial Litigation, Insolvency or Debt Recovery in general, please contact Jackie Ray at jar@blasermills.co.uk.