Bresco Electrical Services Ltd (in liquidation) v Michael J Lonsdale…
Sir Andrew McFarlane (P), King and Coulson LJJ
Bresco Electrical Services Ltd (in liquidation) v Michael J Lonsdale (Electrical) Ltd; Cannon Corporate Ltd v Primus Build Ltd – Arbitration – Insolvency – Injunction – Appellants appealing against orders involving interplay between construction adjudication process and insolvency regime when insolvent companies making claims – Whether contractual claim of insolvent contractor continuing following liquidation – Whether adjudicator having jurisdiction to deal with claim by insolvent company – Whether adjudication having utility – Whether appellant waiving jurisdictional objection to arbitrator – Appeal dismissed
In the first appeal, the appellant subcontracted to provide electrical installation works for the respondent but six months later went into insolvent liquidation. The appellant subsequently sought to set aside an order by which, at the request of the respondent, the court granted an injunction preventing the continuation of an adjudication in which the appellant sought declarations and sums said to be due and payable by the respondent. The basis for the injunction was the appellant’s insolvency and the respondent’s cross-claim. The respondent argued that when the appellant went into liquidation there ceased to be any claim. The adjudicator lacked jurisdiction because, pursuant to rule 14.25 of the Insolvency (England and Wales) Rules 2016, the appellant’s claim had been replaced with the single right to claim the net balance arising out of the mutual dealings and set-off between the parties. A second issue focused on the utility (if any) to be derived from the adjudicator’s theoretical jurisdiction, when the claiming company was in insolvent liquidation and the responding party had a cross-claim.
In the second appeal, the respondent was contracted by the appellant to design and build a hotel. The respondent served a payment notice for around £220,000 and the appellant responded with a pay less notice of nil and then terminated the contract. In an adjudication, the respondent claimed damages for repudiatory breach of contract and was awarded around £2.128 million. The appellant sought to set aside an order, by which the court granted summary judgment in favour of the respondent, and refused a stay of execution, notwithstanding that the respondent was in a company voluntary arrangement (CVA). The respondent argued that the appellant had waived its right to raise a jurisdictional challenge because it had failed to raise the issue during the adjudication.
Bresco Electrical Services Ltd (in liquidation) v Michael J Lonsdale (Electrical) Ltd; Cannon Corporate Ltd v Primus Build Ltd – Arbitration – Insolvency – Injunction – Appellants appealing against orders involving interplay between construction adjudication process and insolvency regime when insolvent companies making claims – Whether contractual claim of insolvent contractor continuing following liquidation – Whether adjudicator having jurisdiction to deal with claim by insolvent company – Whether adjudication having utility – Whether appellant waiving jurisdictional objection to arbitrator – Appeal dismissed
In the first appeal, the appellant subcontracted to provide electrical installation works for the respondent but six months later went into insolvent liquidation. The appellant subsequently sought to set aside an order by which, at the request of the respondent, the court granted an injunction preventing the continuation of an adjudication in which the appellant sought declarations and sums said to be due and payable by the respondent. The basis for the injunction was the appellant’s insolvency and the respondent’s cross-claim. The respondent argued that when the appellant went into liquidation there ceased to be any claim. The adjudicator lacked jurisdiction because, pursuant to rule 14.25 of the Insolvency (England and Wales) Rules 2016, the appellant’s claim had been replaced with the single right to claim the net balance arising out of the mutual dealings and set-off between the parties. A second issue focused on the utility (if any) to be derived from the adjudicator’s theoretical jurisdiction, when the claiming company was in insolvent liquidation and the responding party had a cross-claim.
In the second appeal, the respondent was contracted by the appellant to design and build a hotel. The respondent served a payment notice for around £220,000 and the appellant responded with a pay less notice of nil and then terminated the contract. In an adjudication, the respondent claimed damages for repudiatory breach of contract and was awarded around £2.128 million. The appellant sought to set aside an order, by which the court granted summary judgment in favour of the respondent, and refused a stay of execution, notwithstanding that the respondent was in a company voluntary arrangement (CVA). The respondent argued that the appellant had waived its right to raise a jurisdictional challenge because it had failed to raise the issue during the adjudication.
After the hearing, the second appeal settled but, given the close links between the issues raised in the two appeals, and the important issue of waiver raised in the second appeal, the judgments addressed both appeals.
Held: The first appeal was dismissed.
(1) Liquidation set-off did not, in principle, preclude the determination of the underlying claims. There was no reason why, purely as a matter of jurisdiction (as opposed to utility), a reference to adjudication should be treated any differently to a reference to arbitration. The respondent had conceded in the first appeal that the appellant was entitled either to bring a claim in contract in court or an arbitration claim. If the contractual right to refer the claim to arbitration was not extinguished by the liquidation, the underlying claim had to continue to exist for all purposes. As a matter of principle, the choice of forum could not dictate whether or not the claim existed or had been extinguished. It would be illogical if one of the fundamental features of adjudication deprived the adjudicator of any jurisdiction. Technically the adjudicator would have the jurisdiction to consider the claim advanced by a company in liquidation and that jurisdiction was not precluded by the liquidation set-off rules: Stein v Blake [1996] 1 AC 243, Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd [2000] EWCA Civ 507; [2000] BLR 522 and Re Kaupthing Singer and Friedlander Ltd (in administration) [2010] EWCA Civ 518; [2011] BCC 555 followed. Philpott & Another v Lycee Francais Charles De Gaulle School [2015] EWHC 1065 (Ch) approved.
(2) There was a basic incompatibility between adjudication and the insolvency regime. The former was a method of obtaining an improved cashflow quickly and cheaply. The latter was an abstract accounting exercise, principally designed to assist the liquidators in recovering assets in order to pay a dividend to creditors. It would only be in exceptional circumstances that a company in insolvent liquidation (and facing a cross-claim) could refer a claim to adjudication, succeed in that adjudication, obtain summary judgment and avoid a stay of execution. Thus, in the ordinary case, even though the adjudicator might technically have the necessary jurisdiction, it was not a jurisdiction which could lead to a meaningful result. There was nothing in the facts of the first appeal case which took the case out of the ordinary, or which demonstrated that it was just or convenient for the underlying adjudication to continue. Accordingly, the respondent in the first appeal was entitled to an injunction to prevent the continuation of the adjudication. As a matter of jurisdiction, the contractual claim of an insolvent contractor continued to exist following liquidation, and so might theoretically be referred to adjudication: Enterprise Managed Services Ltd v Tony McFadden Utilities Ltd [2009] EWHC 3222 (TCC); [2010] BLR 89 approved.
(3) The purpose of the Housing Grants (Construction and Regeneration) Act 1996 might be defeated by the taking of technical points, including the use of general reservations of position on jurisdiction as a means of allowing novel jurisdiction points to be taken by the losing party at the enforcement stage. If the responding party wished to challenge the jurisdiction of the adjudicator, it had to do so appropriately and clearly. If it did not reserve its position effectively and participated in the adjudication, it would be taken to have waived any jurisdictional objection. A general reservation of position might not be effective if: at the time it was provided, the objector knew or should have known of specific grounds for a jurisdictional objection but failed to articulate them; the court concluded that the general reservation was worded in that way simply to try and ensure that all options could be kept open. The appellant in the second appeal had raised the specific jurisdiction point for the first time on appeal and could not rely on their original vague general reservation of position: Allied P & L Ltd v Paradigm Housing Group Ltd [2009] EWHC 2890 (TCC); [2010] BLR 59, GPS Marine Contractors v Ringway Infrastructure Services [2010] EWHC 283 (TCC), Aedifice Partnership Ltd v Ashwin Shah [2010] EWHC 2106 (TCC);[2010] PLSCS 227, CN Associates (a firm) v Holbeton Ltd [2011] EWHC 43 (TCC); [2011] BLR 261 and Equitix ESI CHP (Wrexham) Ltd v Bestor Generacion UK Ltd [2018] EWHC 177 (TCC) applied.
(4) The general position relating to a CVA might, depending on the facts, be very different to a situation where the claimant company was in insolvent liquidation. It was designed to try and allow the company to trade its way out of trouble. In those circumstances, the quick and cost-neutral mechanism of adjudication might be a useful tool to permit the CVA to work. Courts should be wary of reaching any conclusions which prevented the company from endeavouring to use adjudication to trade out of its difficulties. Had it remained live, the appeal against the judge’s decision to grant summary judgment in favour of the respondent. would have failed: Westshield Ltd v Whitehouse [2013] EWHC 3576 (TCC); [2014] 1 EGLR 1; [2014] EGILR 4 distinguished.
(5) As it had been open to the judge to grant summary judgment, on the particular facts of this case, the refusal of the application for a stay was almost inevitable. The court would exercise its discretion against a stay if it concluded, as here, that the party seeking the stay was substantially responsible for the claimant’s financial difficulties: Wimbledon Construction Co 2000 Ltd v Vago [2005] EWHC 1986 (TCC) and Mead General Building Ltd v Dartmoor Properties Ltd [2009] EWHC 200 (TCC) applied.
Peter Arden QC and Chantelle Staynings (instructed by Blaser Mills LLP) appeared for the appellant in the first appeal; Thomas Crangle (instructed by Fladgate LLP) appeared for the respondent in the first appeal; Robert-Jan Temmink QC and Charlotte Cooke (instructed by Fieldfisher LLP) appeared for the appellant in the second appeal; Adrian Williamson QC and Peter Shaw QC (instructed by Child & Child Solicitors) appeared for the respondent in the second appeal.
Eileen O’Grady, barrister
Click here to read a transcript of Bresco Electrical Services Ltd (in liquidation) v Michael J Lonsdale (Electrical) Ltd; Cannon Corporate Ltd v Primus Build Ltd
