Michael J Lonsdale (Electrical) Ltd v Bresco Electrical Services Ltd

On liquidation, mutual claims and cross-claims between the company and its counterparty are subject to the mandatory insolvency account and set-off process. They are treated as a single balance payable in one direction. A company in liquidation cannot refer to adjudication a dispute which includes determining sums said to be due from the counterparty, whether under one contract or several. Construction adjudication is temporary and cannot determine the final insolvency account. The adjudicator therefore lacks jurisdiction over such a dispute. The court has jurisdiction to restrain an ongoing adjudication, but intervention is reserved for extremely rare and clear cases.

Bresco, a company in liquidation, sought to refer to adjudication a construction dispute concerning alleged wrongful termination, payment for completed works, completion costs and loss of profit. Lonsdale commenced CPR Part 8 proceedings seeking declarations and a permanent injunction preventing the adjudication.

The dispute concerned the interaction between statutory construction adjudication and the mutual dealings and set-off provisions of the Insolvency Rules. The central question was whether a company in liquidation could refer to adjudication a dispute that included a claim for further sums said to be due from the responding party.

The court granted the declarations sought and held that the adjudication could not continue.

1. Under rule 14.25 of the Insolvency (England and Wales) Rules 2016, mutual credits, debts and other mutual dealings must be brought into a single account. The resulting balance is payable either to the liquidator or to the creditor. The same analysis applied under rule 4.90 of the 1986 Rules.

2. Upon liquidation, the parties’ contractual claims and cross-claims cease to be separately enforceable. The only enforceable dispute is the determination of the net balance arising from the insolvency account. The court did not need to decide whether the underlying rights were technically extinguished or merely incapable of separate enforcement.

3. Adjudication under section 108 of the Housing Grants Construction and Regeneration Act 1996, and under paragraph 1(1) of the Scheme, concerns disputes under a construction contract. The insolvency-account dispute arises in the liquidation. Parliament had not conferred on adjudicators power to conduct the account required by the Insolvency Rules.

4. The temporary and provisional character of adjudication was fundamentally incompatible with the final account required by the insolvency regime. The adjudicator therefore had no jurisdiction where the reference included determination of sums claimed by the company in liquidation.

5. The court rejected the contrary reasoning in Philpott v Lycee Francais Charles de Gaulle School, which treated adjudication as available but potentially unenforceable. There was no intermediate position: a tribunal either had jurisdiction or it did not.

6. The court confirmed that it had jurisdiction to restrain an ongoing adjudication, but such intervention should occur only in extremely rare and clear cases.