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A right to refer a dispute to adjudication at any time?

View profile for Perdeep Grewal
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A right to refer a dispute to adjudication at any time? Not if you are in liquidation...

The Housing Grants, Construction and Regeneration Act 1996 (Construction Act 1996) gives a party to a construction contract the right to refer a dispute to adjudication “at any time”. However, the recent judgment in Michael J Lonsdale (Electrical) Limited v Bresco Electrical Services Limited (In Liquidation) makes it clear that a company in liquidation cannot refer a dispute to adjudication when that dispute includes determination of any claim for further sums to be paid to them.

Background

Bresco Ltd agreed to perform electrical installation services for Michael Ltd. Those works were not completed. The relationship between the parties broke down, each alleging that it was entitled to payment as a result of the other party having wrongfully terminated the construction contract between them.

 Bresco Ltd became insolvent and entered into liquidation. Bresco’s liquidator initiated an adjudication against Michael Ltd, claiming payments under the contract were due for i) works done before leaving the site; and ii) damages for loss of profit.

Michael Ltd invited the adjudicator to resign on the basis that he had no jurisdiction because Bresco Ltd was insolvent. The adjudicator refused to resign and therefore Michael Ltd sought a declaration and an injunction to prevent Bresco Ltd from commencing adjudication proceedings.

The key issue

The key issue to determine was ‘whether a company in liquidation can refer a dispute to an adjudication when that dispute includes determination of a claim for further sums said to be due to the referring party from a responding party.’

The decision

The court found in favour of Michael Ltd and granted a declaration that a company in liquidation could not commence adjudication proceedings when that dispute includes claims for payment.

The decision applied the Insolvency Rules and considered that when a company enters into liquidation, an account must be taken of the different sums due from the insolvent company (Bresco Ltd) and the creditor (Michael Ltd). The sums due from one party must be set off against the sums due from the other, and the result being that only a single balance then becomes due.

The adjudication between the parties was not allowed to continue as the adjudicator did not have jurisdiction to identify the net balance due to either party.

The significance

This is a significant decision in the construction industry. Whilst the Construction Act 1996 may give a party the right to refer a dispute to adjudication at any time, once the Insolvency Rules apply, there is no dispute under a construction contract. This decision prevents companies in liquidation from bringing an adjudication to pursue money related claims as a method to determine disputed amounts.

The decision is also useful for creditors, who are on the receiving end of adjudication proceedings commenced by a company in liquidation. Creditors now have clear legal authority to challenge an adjudicator’s jurisdiction and request an adjudicator to resign if called upon to determine claims subject to set-off.

If you have any questions about adjudication or if you are a business which is due an outstanding payment, please feel free to contact me at our Chelmsford office on 01245 453 804 or email me at perdeep.grewal@birkettlong.co.uk.

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