This case highlights the compatibility between the adjudication regime for building disputes and insolvency set-off.
Bresco and Lonsdale are electrical contractors; both claimed that they were owed money by the other. In 2016, Bresco entered into insolvent liquidation and Bresco’s liquidators sought to refer the company’s claim for £219,000 against Lonsdale in unpaid fees and damages for lost profits to adjudication.
Lonsdale objected to the adjudication on the basis that insolvency set-off applied between Bresco’s claim and Lonsdale’s cross-claim (Lonsdale alleged that Bresco had abandoned the construction project prematurely, forcing them to pay £325,000 for replacement contractors) such that there was no longer any claim or dispute under the contract. Therefore, the adjudicator would not have any jurisdiction to adjudicate upon the claim (the Jurisdiction Argument). Lonsdale’s second argument was premised on the futility of the adjudication on the basis that the adjudicator’s decision would not be enforced until the liquidator had calculated the net balance (the Futility Argument).
The UK Supreme Court (UKSC) unanimously dismissed Lonsdale’s arguments and held that the adjudication may proceed.
On the Jurisdiction Argument, the UKSC held that the adjudicator has jurisdiction to determine the claim even if there was an insolvency set-off between Bresco’s claim and Lonsdale’s cross-claim. Application of an insolvency set-off does not mean that there is no longer a dispute under the construction contract or that the claims have melted away. Despite the set-off, Bresco retained the right to bring proceedings to determine the value of its claim, exercise its contractual right to refer the dispute to arbitration or have the claim adjudicated.
On the Futility Argument, the UKSC rejected Lonsdale’s argument and held that Bresco has a statutory and contractual right to adjudication. It would, therefore, be inappropriate for the court to interfere with the exercise of that statutory and contractual right.