Can A Liquidator Adjudicate A Dispute That Arose Under A Construction Contract? Mr Andrew Weston

In August 2018, in Michael J Lonsdale (Electrical) Limited v Bresco Electrical Services Limited (In Liquidation)1 Mr Justice Fraser had the opportunity in the context of CPR Part 8 proceedings to clarify whether or not a liquidator can pursue a claim in adjudication arising out of a construction contract.

As Andrew Weston explains here, this was a case in which Pythagoras Capital Limited (on behalf of Bresco's liquidator) commenced an adjudication in respect of monies claimed from Lonsdale arising out of a disputed termination, but were they right to have done so?

In Lonsdale, the question to be answered, as framed by Mr Justice Fraser, was "Whether a company in liquidation can refer a dispute to adjudication when that dispute includes (in whole or in part) determination of a claim for further sums said to be due to the referring party from the responding party?"

For the reasons summarised below, Mr Justice Fraser confirmed the precedence of rule 14.25 of the Insolvency Rules 2016 when it comes to claims under construction contracts pre-dating the liquidation. Mr Justice Fraser firmly dismissed any notion that such claims might be referred to adjudication after a company has been placed in liquidation.

Background

Bresco entered into a contract with Lonsdale for electrical installation works in August 2014. Bresco left the site in December 2014 before the works had been completed. Both Bresco and Lonsdale alleged wrongful termination against the other. Bresco then became insolvent and entered into liquidation on 12 March 2015.

In October 2017, Lonsdale intimated a claim against Bresco, claiming the direct costs of completing the works said to have been caused by this termination. Bresco's liquidator responded that it was Lonsdale who had wrongfully terminated, and so owed Bresco money.

On 18 June 2018, Bresco commenced an adjudication against Lonsdale under the contract. Lonsdale invited the adjudicator to resign on the basis he had no jurisdiction, given Bresco had been placed in liquidation. The adjudicator declined the invitation, having concluded he did have jurisdiction.

Lonsdale commenced Part 8 proceedings and the parties agreed to stay the adjudication pending the determination of Lonsdale's claim.

The Part 8 proceedings

The Judge's starting point was the Insolvency Rules 2016, rule 14.25: "An account must be taken of what is due from the company and the creditor to each other in respect of their mutual dealings and the sums due from...