In the August 2018 issue we looked at the case of Michael J Lonsdale (Electrical) Limited v Bresco Electrical Services Limited (in liquidation). This case has now been reviewed by a conjoined appeal to the Court of Appeal with the case of Cannon Corporate Limited v Primus Build Ltd. The previous decisions were upheld by the Court of Appeal case Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Limited, Cannon Corporate Ltd v Primus Build Ltd which explores the rules surrounding adjudication and insolvency and how they can be ‘an exercise in futility’.
The decisions
In the case of Michael J Lonsdale v Bresco the TCC awarded an injunction to prevent an adjudication from continuing as the referring party was in liquidation. The decision confirmed that an adjudicator will not have jurisdiction if the adjudication concerns a monetary dispute and one of the parties is in liquidation.
In the case of Primus v Cannon the TCC enforced an adjudicator’s decision and did not grant a stay of execution even though the referring party was in a company voluntary arrangement (CVA). However, the judge did highlight that the outcome was highly dependent on the facts of the case and was not a general rule to be applied.
The appeal
Bresco sought to set aside the TCC judgment for the reason that a party in liquidation is able to bring a claim in court and therefore the adjudicator should have jurisdiction in these cases. The Court of Appeal upheld the decision of the TCC but stated that the judge was mistaken to state that an adjudicator would not have jurisdiction. Coulson LJ stated that there were inherent flaws when considering adjudication alongside insolvency. When there is a cross-claim in an adjudication with an insolvent party it would be ‘an exercise in futility’. Therefore whether an injunction should be granted in adjudication enforcement is down to the facts of the case and whether it is reasonable to do so, not the jurisdictional reasons that the TCC had detailed.
Cannon appealed on the basis of the jurisdictional argument that was raised in the case of Lonsdale v Bresco. The judge upheld the judgment and also refused a stay of execution as again there was an incompatibility between the adjudication proceedings and the insolvency of the company. It would affect the insolvency if a stay of execution was granted.
Comment
This case reinforces the message contained in our August 2018 article and demonstrates that adjudication proceedings are not the most effective way of dealing with construction disputes if one of the parties is insolvent. This case makes it clear that the court is unlikely to enforce any judgments in such circumstances.
The Court of Appeal has also made it very clear that there are difficulties in applying the law surrounding adjudication and insolvency together. An area of law which is sure to be clarified and potentially reformed and we will update you as and when this happens.