Search

How can we help?

Icon

Liquidation and adjudication

Adjudication is a relatively quick and cheap way of determining a construction claim. It is temporarily binding, meaning that with limited exceptions, it will be enforced by the courts unless and until it is overturned in subsequent litigation.  

A Liquidator will often have insufficient assets to fund litigation to pursue claims, especially if ordered to provide security for costs.  Faced with this problem, the Liquidator of Bresco Electrical Services Limited started an adjudication against M J Lonsdale.  Bresco had already been in liquidation for three years by the time of the adjudication and Lonsdale had lodged its own claim against Bresco.  Lonsdale successfully obtained an injunction to restrain the Liquidator from pursuing the adjudication.  Bresco appealed.

Lord Justice Coulson in the Court of Appeal considered the two grounds on which the injunction had been granted:

  • The effect of the mandatory rules of insolvency set-off deprived the Adjudicator of jurisdiction to decide the claim
  • The adjudication would be an ‘exercise in futility’ because the court would never order enforcement of the Adjudicator’s award

Having considered the issues in length, the Court decided that the Adjudicator did have jurisdiction.  The set-off rules do not prevent a company in liquidation from bringing litigation or arbitration and there was no reason why adjudication should be treated differently.  However, it remained the case that the adjudication would be pointless.  The existence of Lonsdale’s cross claim would prevent the court ordering summary judgment to enforce the Adjudicator’s award.  Even if that were not the case, the fact of the liquidation meant that the court would order a stay against enforcement.  Coulson LJ explained that there were a number of policy reasons for preventing pointless adjudications, including the need to avoid unnecessary costs for all parties and to protect the resources of the court for other litigants.

As the appeal was partially successful, the decision leaves open the possibility of Liquidators bringing an adjudication that would not be an exercise in futility.  One example might be a claim for a non-monetary award.

Adjudication is a relatively quick and cheap way of determining a construction claim. It is temporarily binding, meaning that with limited exceptions, it will be enforced by the courts unless and until it is overturned in subsequent litigation.  

At the same time, the Court heard the appeal in Cannon Corporate v Primus Build, which concerned a company in CVA.  The Court confirmed that the CVA did not deprive an adjudicator of jurisdiction.  In contrast to Lonsdale, the adjudication was allowed to proceed.  Primus was not in liquidation and, if the CVA succeeded, would never enter liquidation.  Accordingly, it was likely that the adjudication award would be capable of enforcement.  On the facts of the claim, Cannon was the cause of Primus’ financial difficulties, meaning that the Court was unlikely to order a stay.

Whilst the two appeals give very helpful guidance, cases will still turn on their own facts.  Before commencing an adjudication, a company in any form of insolvency process must ask the question – is the court likely to enforce the adjudication award?

About this article

Disclaimer
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full General Notices on our website.

About this article

Read, listen and watch our latest insights

art
  • 10 July 2024
  • Employment

Redundancy : Back to Basics FAQs

Redundancy can be a scary and overwhelming time both for employees being made redundant, and for those that have to make the decision. It is important for both parties to know their rights and obligations in this time.

art
  • 09 July 2024
  • Public Procurement

Buyer Beware: Practical Guidance for Breach of Warranty in an SPA

Are you buying a business? Whether you are buying shares in a company or purchasing its assets… the general Latin common law principle “caveat emptor” applies.

art
  • 08 July 2024
  • Corporate and M&A

Navigating corporate transparency: ECCTA reforms series

This is the second article in a series exploring the changes brought by the Economic Crime and Corporate Transparency Act 2023 (ECCTA).

art
  • 08 July 2024
  • Immigration

Right to Work Check Guidance – Key Changes for Employers

This updated guidance introduces several significant changes aimed at streamlining the right to work verification process for employers.

Pub
  • 02 July 2024
  • Privacy and Data Protection

Data protection unlocked for HR: Introduction to data protection

Lucy Densham Brown and Sana Nahas from the data protection team will discuss data protection issues encountered by HR professionals in the first episode of the ‘Data Protection Unlocked for HR’ podcast series.

Pub
  • 27 June 2024
  • Employment

TUPE Podcast Series: What Transfers

In this sixth podcast in our TUPE Podcast Series, Amanda Glover will delve into the automatic transfer principle and what transfers to the incoming employer under TUPE.