Insolvency set off and the right to adjudicate: Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd [2020] UKSC 25
Lonsdale challenged his jurisdiction on the grounds that the Insolvency Rules (currently rule 14.25 of the Insolvency (England and Wales) Rules 2016 (SI 2016/1024) (the Insolvency Rules) required mutual debts to be set off against one another and only the balance found due either way amounted to a debt capable of founding proceedings. It was said that the several claims and cross-claims ceased to have a separate existence until the account had been taken and thus there could be no dispute before then. Lonsdale went to court for an injunction to restrain the adjudication. The case came on before Fraser J who decided that the adjudicator lacked jurisdiction in effect for the reason that the Insolvency Rules were in conflict with the right of adjudication and the former trumped the latter. He granted the injunction. Bresco appealed to the Court of Appeal (Sir Andrew McFarlane P, King and Coulson LJJ) who reversed Fraser J and held that there was a dispute that could be referred to adjudication. But they went on to decide that the injunction restraining the further conduct of the adjudication should be continued on the basis that, since there could be no enforcement, it would be an exercise in futility and a waste of time and money. Bresco then appealed to the Supreme Court against the continuation of the injunction, while Lonsdale cross-appealed on jurisdiction.
Background:
Bresco was engaged by Lonsdale under a Contract (actually a sub-sub-contract) with an adjudication provision which mirrored s.108 of the Act (the right to adjudicate “at any time”). In December 2014 Bresco ceased to attend the site, alleging much later that it did so by way of acceptance of repudiatory breach of the Contract by Lonsdale. In March 2015 Bresco went into creditors’ voluntary liquidation. Thereafter Bresco acted by its liquidator or from time to time by its agent Pythagoras Capital Ltd which funded the claim against Lonsdale in the liquidation. Each party made claims against the other for breach of the Contract based on repudiatory breach. Lonsdale’s claim included £325,000 odd for the cost of having Bresco’s contracted works done by another contractor. Bresco denied that claim and themselves claimed £219,000 odd for the value of work done, and damages for loss of profits under the Contract. All the claims and cross-claims arose entirely from the Contract with each denying the other’s claim in their entirety. In June 2018 Bresco gave notice of intention to refer a dispute to adjudication, seeking payment of £219,000. Tony Bingham was appointed adjudicator.
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