Implications of Insolvency on Construction Adjudications, June 2020

Will a recent Supreme Court decision in England have wide ranging implications for insolvency companies?


The recent Supreme Court decision in England in Bresco Electrical Services -v- Michael Lonsdale 2020 UK SC 25 (17 June 2020) has wide ranging implications for insolvency companies who wish to adjudicate a construction dispute and has decided the issue of whether an adjudicator has jurisdiction to decide such a dispute.

The issue that came before the Court was whether it should grant an injunction to retrain an insolvent company (in liquidation) from referring a dispute with a cross claiming creditor to adjudication.

The case arose as Bresco had agreed to perform electrical works for Lonsdale in 2014. Bresco went into liquidation and Lonsdale claimed by way of a cross claim that it was owed over Stg £300,000 compensation by Bresco. Bresco claimed it was owed money for work done, When Bresco’s liquidator referred the dispute to adjudication, Lonsdale claimed that adjudication was not available in these circumstances and sought an injunction to restrain Bresco from pursuing the adjudication.

Following decisions from Technology and Construction Court (“TCC”) and from the Court of Appeal to prevent Bresco from proceeding to adjudication, the Supreme Court in England held otherwise and found that an insolvent company with a set off claim against it does not mean that it cannot proceed to make a claim in adjudication.

It held that while in some cases an adjudication award may not be enforceable, this was not the position in many cases and the adjudication can proceed (leaving an accountancy set off exercise to take place). The Court found that the adjudication was a statutory and contractual right and that nothing in the statutory schemes in insolvency takes that away. It concluded that an adjudicator does have jurisdiction to hear such a dispute.

The case answers important questions for construction and insolvency professionals and leads the way for insolvent companies to participate in construction adjudication. Many companies previously, due to insolvency would not proceed to adjudication but as a result of this judgment creditors will now benefit from the ability of insolvent companies to adjudicate such disputes and in some cases enforce awards.

This is a very timely judgment, given during the Covid 19 Pandemic, which has impacted many construction companies. These companies now if insolvent can still pursue an adjudication claim. Contractors who previously dismissed claims of insolvent sub-contractors will now have to realise that these claims, which they may not have considered possible due to financial circumstances, can still be adjudicated.

Professional advice should always be taken before acting on any of the matters discussed. Please contact a member of our team should you wish to discuss this topic further.