This article is all about Bresco Electrical Services Ltd (in liquidation) v Michael J Lonsdale (Electrical) Ltd 2020, in particular in relation to how it affects Adjudication. This case sets the precedent that an insolvent company can refer a dispute to Adjudication. So, if for example, an insolvent company is owed £500,000 from its creditor it can use Adjudication to obtain an Adjudications decision for the payment of that money. Whether the Technology and Construction court will enforce that decision will be decided on a case by case basis.
We support legal representation in more complex cases but we want to encourage especially smaller companies to feel more confident fighting for their contractual rights.
Michael J Lonsdale (Electrical) Ltd (“Lonsdale”) sub-contracted some electrical works in London to Bresco Electrical Services Ltd (in liquidation) (“Bresco”)
Bresco stopped the works claiming a serious breach of contract by Lonsdale and went into liquidation. By this stage there was a serious dispute over claims for additional monies.
Then Bresco issued a notice of intention to refer a dispute to adjudication.
Lonsdale responded by challenging the jurisdiction of Bresco to refer a dispute considering it was in liquidation.
This dispute made its way the Technology and Construction Court, the Court of Appeal and even the Supreme Court!. Eventually it was held that Bresco could in fact refer a dispute to Adjudication even if it was in liquidation.
It is not important to go through all of the intricate legal arguments. What really matters is the implications of this case. These include:
The judge confirmed that Adjudication is “mainstream method” of Alternative Dispute Resolution and that it was attractive due to its speed and relatively low cost.
It does not matter that a company is insolvent. An insolvent company can still refer a dispute to Adjudication and be the winning party. This is a very useful tool for liquidators seeking to receive monies.
Whether or not a court will enforce a summary judgement against a losing party who is a creditor to the insolvent business remains to be seen. So lets say Bresco won the Adjudication and the Adjudicator ordered Lonsdale to pay Bresco £500,000. Lonsdale would simply not pay and Bresco would look to the Technology and Construction court for enforcement. At this stage the coourt might decide that enforcement of the decision may not be compatible with the Insolvency rules. Simply put the court is not going to tell Londsdal to pay Bresco £500k when Londsdale is owed £1,000,000 from Bresco. This is because Bresco is insolvent and most likely will never pay that £1,000,000 and the insolvency law prevents such an unfair action.
It is fair surely, for a Liquidator to be able to chase up monies that is rightfully owed to the liquidated company. And therefore it follows it is fair to use Adjudication as a tool to obtain these monies.
However, it is a bit harsh on a responding company to have to respond to and participate in, an adjudication, knowing full well that if it wins, the costs will most probably not be paid by the insolvent business.
But on balance, most liquidators will not enter into an adjudication unless they feel that they have a really strong chance of winning as it would cost too much.
So, what are the chances of an innocent party being referred to Adjudication only to win and have to pay their own costs ? Probably low.
Its really important to point out that even if an insolvent company wins their adjudication it is entirely up the Technology and Construction court about whether they will enforce it. If the responding party issue a claim against the insolvent business then there will be a battle regarding whether that claim is valid. If their claim is valid the TCC probably will not enforce the Adjudicators decision as the claim will never be paid.
Mr Justice Fraser was the High Court Judge (Technology and Construction Court).
Lord Briggs was the Supreme Court Judge