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Bresco Electrical Services Limited (in liquidation) v Michael J Lonsdale (Electrical) Limited / Cannon Corporate Limited v Primus Build Limited

Case reference: 
[2019] EWCA Civ 27
Thursday, January 24, 2019

Key terms: 
Adjudication – Corporate insolvency – Enforcement – Injunctions – Jurisdiction – Netting – Set-off – Stay of proceedings – Summary judgments – Waiver

These conjoined appeals raise important issues as to the interplay between the adjudication process and the insolvency regime. In the first appeal, Bresco Electrical Services Ltd (in liquidation) (“Bresco”), sought to set aside an injunction. The injunction prevented the continuation of an adjudication in which Bresco and Michael J Lonsdale (Electrical) Ltd (“Lonsdale”) sought sums from each other in claims and cross-claims. In the second appeal, Cannon Corporate Ltd (“Cannon”) appealed against a summary judgment for over £2 million in favour of Primus Build Limited (“Primus”) and against the refusal to grant a stay of execution notwithstanding that Primus was in a Company Voluntary Arrangement (“CVA”). The unspoken suggestion was that, since they gave rise to markedly different outcomes, one of those judgments had to be wrong.

Coulson LJ upheld the injunction granted by Fraser J. Coulson LJ considered both jurisdiction and practical utility. Dealing first with the former, Coulson LJ rejected the argument that the Adjudicator did not have jurisdiction. Fraser J had found at first instance that the mandatory set off in liquidation under Rule 14.25 had the effect of replacing claims and cross claims with a single debt. The Court of Appeal however decided that “the underlying claim must continue to exist.” Therefore, as to jurisdiction the Court of Appeal decided that Fraser J was wrong to find that the Adjudicator had no jurisdiction to consider the claim.

It was on the practical utility argument that the injunction was upheld. There was nothing to be gained from Bresco pursuing an adjudication because any subsequent enforcement of the adjudication award would either fail or be stayed. It would only be in exceptional circumstances that a company in insolvent liquidation and facing a cross-claim could succeed in an adjudication, obtain summary judgment and avoid a stay of execution. An adjudication brought by a company in liquidation, where a subsequent decision would be incapable of enforcement, is an “exercise in futility”.

Cannon v Primus was a very different case as the claiming company was subject to a CVA and a liquidator was engaged to recover what he could for creditors. A CVA is designed to try and allow the company to trade its way out of trouble. In those circumstances, LJ Coulson thought the “quick and cost-neutral mechanism” of adjudication may help a CVA to work, providing a quick and cheap method of improving cashflow.

The real issue was whether the judge was entitled to enter summary judgment in favour of Primus. In this case it was found that Primus’ financial position was due to Cannon’s repudiation and failure to pay. The Judge at first instance refused Cannon’s application for a stay, having decided he could enter summary judgment in favour of Primus.

The Court of Appeal also considered whether Cannon had waived the right to make the argument that the Adjudicator did not have jurisdiction. Coulson LJ restated the applicable principles in the adjudication context, noting that Cannon’s solicitor’s email reserving Cannon’s rights to raise any jurisdictional issues was “so vague - perhaps deliberately so - as to be ineffective.” Coulson LJ found that Cannon had waived its right to raise a jurisdictional objection based on Primus’ CVA, making clear that courts “should be vigilant to discourage” this approach.

These appeals demonstrate that whilst liquidation does not automatically prevent a party from referring a dispute to adjudication, the incompatibility between adjudication and the insolvency regime means that where there is a genuine cross-claim it is likely an injunction will be granted to the responding party. With regards to jurisdictional reservations, Cannon v Primus has emphasised the importance of raising them early and ensuring they are specific where possible.

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