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

A company’s entry into insolvent liquidation does not extinguish its contractual right to refer a construction dispute to adjudication. An adjudicator therefore has jurisdiction despite the operation of insolvency set-off.

However, adjudication and insolvent liquidation are ordinarily incompatible where the responding party has a cross-claim. An adjudicator’s temporarily binding decision will generally be unenforceable and the court may restrain a futile adjudication by injunction.

A company voluntary arrangement requires a fact-sensitive approach. It does not automatically prevent enforcement or require a stay. A responding party also waives an available jurisdictional objection by participating without an appropriately clear reservation.

These conjoined appeals concerned the interaction between construction adjudication and insolvency. Bresco, which was in insolvent liquidation, referred contractual claims against Lonsdale to adjudication. Lonsdale had a cross-claim. Fraser J granted an injunction restraining the adjudication in [2018] EWHC 2043 (TCC), holding that the adjudicator lacked jurisdiction and that the process lacked utility.

In the related appeal, Primus was subject to a company voluntary arrangement. HHJ Waksman QC enforced an adjudication award against Cannon and refused a stay in [2018] EWHC 2143 (TCC). Cannon’s appeal settled after the hearing, but the court addressed its issues because of their importance and connection with Bresco’s appeal.

The principal questions were whether insolvency set-off removed an adjudicator’s jurisdiction, whether a futile adjudication could be restrained, how jurisdictional objections could be waived, and whether a company voluntary arrangement prevented enforcement or required a stay.

1. Bresco’s appeal was dismissed. Insolvent liquidation did not extinguish Bresco’s contractual right under section 108 of the Housing Grants (Construction and Regeneration) Act 1996 to refer a dispute to adjudication. Insolvency set-off under rule 14.25 of the Insolvency Rules 2016 required the calculation of a net balance, but did not prevent the underlying claims from being determined. The choice of adjudication rather than litigation or arbitration could not determine whether a claim existed. Enterprise Managed Services Ltd v Tony McFadden Utilities Ltd [2009] EWHC 3222 (TCC) was wrong insofar as it treated insolvency set-off itself as a jurisdictional bar.

2. Jurisdiction did not determine whether the adjudication should proceed. Adjudication is a quick, temporarily binding cash-flow process, whereas insolvency set-off requires a comprehensive account of mutual dealings and a net balance. Where a company in insolvent liquidation advances a claim and the respondent has a cross-claim, enforcement without a stay will ordinarily be unavailable. Only exceptional circumstances are likely to permit the company to obtain an adjudication decision, summary judgment and execution.

3. Bresco’s adjudication had no practical utility. It could not serve as a cheap, non-binding valuation exercise at Lonsdale’s expense. Bresco had been in liquidation for more than three years, could not be expected to resume trading, and faced a known cross-claim. It was therefore just and convenient to restrain the futile adjudication by injunction.

4. A party wishing to challenge an adjudicator’s jurisdiction must object appropriately and clearly. A general reservation may sometimes suffice, but it may be ineffective where an available specific objection is omitted or the wording merely seeks to preserve every possible future point. Participation without an effective reservation waives the objection. Cannon’s vague reservation was ineffective and was superseded by two specific objections.

5. A company voluntary arrangement does not itself prevent summary enforcement or require a stay. Its terms, purpose and the company’s trading position must be examined. Primus’s arrangement was intended to permit recovery of its claims, payment of all creditors and continued trading. Summary judgment was therefore available. A stay was properly refused because Cannon’s repudiation and non-payment had caused Primus’s financial difficulties to a significant extent.

6. King LJ and Sir Andrew McFarlane agreed with Coulson LJ. No further order was required in Cannon’s settled appeal.

1. Court of Appeal (Civil Division): Bresco’s appeal was dismissed. The court rejected the finding that the adjudicator lacked jurisdiction but upheld the injunction because the adjudication was futile. No further order was made in Cannon’s settled appeal: [2019] EWCA Civ 27.
2. Technology and Construction Court — Bresco: Fraser J restrained Bresco’s adjudication on jurisdictional and utility grounds: [2018] EWHC 2043 (TCC).
3. Technology and Construction Court — Cannon: HHJ Waksman QC entered summary judgment for Primus and refused a stay of execution: [2018] EWHC 2143 (TCC).