Legal Developments In Construction Law

Published date26 November 2021
Subject MatterReal Estate and Construction, Construction & Planning
Law FirmMayer Brown
AuthorMayer Brown

In Bresco Electrical Services Limited (in liquidation) v Michael J Lonsdale (Electrical) Limited the Supreme Court said that a company in liquidation was entitled to commence and pursue an adjudication, and that to do so was not a futile exercise. But did the Supreme Court also decide that a company in liquidation was entitled to summary judgment to enforce the adjudicator's decision, regardless of the absence of a final determination of the other party's set-off and cross-claim?

In John Doyle Construction Ltd v Erith Contractors Ltd the Court of Appeal dismissed an appeal on three fact-specific grounds but also considered, obiter, this wider question. In doing so, it emphasised that in an insolvent liquidation scenario, set-off is automatic. It affects the substantive rights of the parties and will reduce or extinguish a debt. The claims exist for the purpose of quantification only. When it comes to proving in the insolvency or suing in court, it is only the net balance which can be proved or recovered. The insolvent company's cause of action is for the net balance only and it is impossible to waive or disapply the Insolvency Rules.

The Court's view was that an adjudicator's provisional finding, even on a single final account dispute where no other significant non-contractual or other contractual claims arise, cannot be treated as if it were a final determination of the net balance, in circumstances where the other party maintains its set-off and cross-claim. An adjudicator's decision, while binding, is not a final decision. It is open to the court (or an arbitrator) to revisit the question of set-off. In that event the adjudicator's actual reasoning has no evidential or legal weight.

It noted that there is considerable procedural flexibility in conducting a liquidation, which should be used to ascertain the net balance (one way or the other). It concluded that it is only once the net balance has been ascertained, by whatever appropriate means, that judgment should be entered.

John Doyle Construction Ltd v Erith Contractors Ltd [2021] EWCA Civ 1452

2. Scottish court says NEC3 mutual trust clause has good faith impact

Clause 10.1 of NEC3 says that the parties "...shall act ...in a spirit of mutual trust and co-operation...". In September 2020 a Scottish court concluded that the clause did not add much, but, on appeal, the Inner House of the Scottish Court of Session said that clause 10.1 was "...not merely an avowal of aspiration. Instead it reflects and reinforces the general principle of good faith in contract." It aligns with three specific propositions from case law:

  • a contracting party "will not in normal circumstances be entitled to take advantage of their own breach as against the other party";
  • a subcontractor is not obliged to obey an instruction issued in breach of contract; and
  • clear language...

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