In a case that is sure to keep lawyers talking for months, the Supreme Court has decided the important case of Bresco Electrical Services Ltd (In Liquidation) v Michael J Lonsdale (Electrical) Ltd.
The case concerns the relationship between the statutory adjudication and insolvency set-off regimes.
An insolvent electrical sub-contractor (Bresco) was appealing an injunction that prevented it from adjudicating against Lonsdale following a disputed termination. The Supreme Court unanimously allowed the appeal, meaning that the adjudication can go ahead.
The Supreme Court held that:
1. the 'jurisdiction point'
The insolvency set-off between Bresco's claim and Lonsdale's cross-claim did not mean that any claims under the contract "simply melt away" so as to render them incapable of adjudication.
2. the 'futility point'
While it remained possible that the courts would not permit summary enforcement of the adjudicator's decision due to the insolvency process, that did not automatically mean that the adjudication was futile. For example, it might provide a simple method for Bresco's liquidators to determine the net balance due between the parties.
As Lord Briggs put it at paragraph 71 of the judgment:
"71. I have therefore reached the opposite conclusion from that of the Court of Appeal on the issue of futility. Construction adjudication, on the application of the liquidator, is not incompatible with the insolvency process. It is not an exercise in futility, either generally or merely because there are cross-claims falling within insolvency set-off, and there is no reason why the existence of such cross-claims can constitute a basis for denying to the company the right to submit disputes to adjudication which Parliament has chosen to confer."
Lord Briggs also commented obiter that “consideration of costs and of burdens on the court militate against...admitting applications for injunctions to restrain adjudications before they have run their course."
With many predicting a rise in construction insolvencies as the economic effects of COVID-19 become more apparent, this is welcome news. Adjudicators are likely to be busier than ever... albeit the battleground may now shift to enforcement proceedings
I have attached the Supreme Court's own YouTube summary of the case. Full video footage of the hearing can be found here
This appeal and cross-appeal raise important questions about the compatibility of two statutory regimes, namely the adjudication of construction disputes and the operation of insolvency set-off.
