In Bresco v Lonsdale, the Supreme Court examined the relationship between adjudication under the Housing Grants, Construction and Regeneration Act 1996 (as amended) (the “HGCRA”) and the rules for insolvency set-off, as stipulated in the Insolvency Rules 2016.

History

In the May 2020 issue of Construct, Peter Blake discussed the Court of Appeal’s decision in Bresco v Lonsdale [2019] EWCA Civ 27, as well as the subsequent decisions in Meadowside v Hill Street Management Co. [2019] EWHC 2651 (TCC) and Astec v Balfour Beatty [2020] EWHC 796 (TCC).

In the Court of Appeal in Bresco, Coulson LJ held that whilst theoretically an insolvent party could commence an adjudication. However, where it was looking to enforce any subsequent decision, and where there was a cross-claim, doing so would be “an exercise in futility”.

In Meadowside, the Court permitted enforcement of an adjudication decision in favour of an insolvent party, on the basis of that decision determining the net position between the parties, and the insolvent party providing adequate security.

In Astec, the Court came to a practical solution in ordering three separate adjudications to commence within a set timeframe, in order to determine the net position between the parties on three separate contracts. Following this, if the insolvent party was successful in the adjudications, enforcement would be stayed for six months. Further, the court requested security of £750,000.00 for adverse costs.

The decisions in Meadowside and Astec show the Courts’ desire to protect cash flow via adjudication under the HGCRA whilst being mindful of the finality of enforcing an adjudicator’s decision in favour of an insolvent party.

Bresco in the Supreme Court

The Supreme Court considered the two main issues decided in the Court of Appeal decision, namely i) does the adjudicator have jurisdiction where the referring party is in liquidation, and ii) is the adjudication an “exercise in futility”.

On issue i) Lord Briggs, giving the sole judgment, agreed with Coulson LJ that an adjudicator does have jurisdiction to decide a dispute referred by a party in liquidation.

As to issue ii) Lord Briggs overturned the Court of Appeal decision, upholding a party’s statutory or contractual right to refer a dispute to adjudication, and that

“… [there is no] basis for a conclusion that this beneficial means of dispute resolution is incompatible with the insolvency process, or with the requirement to deal with cross-claims in insolvency by set-off, still less an exercise in futility.”

With regard to enforcement, Lord Briggs stated that any enforcement issues should be dealt with if proceedings get that far; many will not, and in others the party in liquidation could offer security, as per Meadowside.

The Supreme Court also had some interesting remarks as to the utility of adjudication, being an “attractive” process that is fast, simple, proportionate and overseen by an expert on the substantive matters in dispute. Lord Briggs also stated that adjudication is more than just a process to ensure cash flow, and is a “mainstream dispute resolution in its own right”.

Comment

The Supreme Court decision clarifies the issue of an adjudicator’s jurisdiction where the referring party is in liquidation. The decision will be useful for liquidators and parties to construction contracts looking to resolve the disputes which will inevitably arrive in the period following the Covid-19 “lockdown”. The Supreme Court position also accords with the “rescue culture” promoted by the recently-passed Corporate Insolvency and Governance Act 2020.

The Supreme Court decision also represents a ringing endorsement of adjudication, both as a means to ensure cash flow and also to resolve disputes generally. There is expected to be a large backlog of civil court cases, exacerbated by the Covid-19 “lockdown”, and ADR methods such as adjudication could play a role in easing the queue of cases. Parties to construction contracts are advised to make use of statutory adjudication, and if not applicable, to agree to adjudication in their contracts.

Expert
Liam Hendry
Solicitor