Adjudication is not available for monetary claims by liquidators.

Adjudication is not available for monetary claims by liquidators.

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In a high court decision on 31 July 2018 in the matter of Michael J Lonsdale (Electrical) Limited-v-Bresco Electrical Services Limited [2018] EWHC 2043 (TCC), the Honourable Mr Justice Fraser decided that

“A company in liquidation cannot refer a dispute to adjudication when that dispute includes (whether in whole or in part) determination of any claim for further sums said to be due to the referring party from the responding party”

This decision is of real practical importance. By its very nature, a company in liquidation is reluctant to pursue litigation because of the costs involved and the adverse costs risk. Pursuing a monetary claim through adjudication has been an attractive alternative providing a speedy decision (within 28 days of referral) that can then be enforced. The problem in practice has been that enforcement of a monetary decision in its favour by a company in liquidation has been difficult where there were cross claims. The courts have been reluctant to follow the usual rule of “pay now argue later” where the payee is in liquidation because of the risk that if the paying party is right, the money paid will not be recoverable. In practical terms, a decision in favour of a company in liquidation has been unenforceable in many cases. However, notwithstanding the difficulties over enforceability, adjudication has offered a liquidator a useful route to secure leverage against a non-payer and to force settlement without the costs risks of litigation.

The decision in Lonsdale –v- Bresco however means that option is no longer open to liquidators for monetary claims. The logic of the decision comes from impact of the Insolvency (England and Wales) Rules 2016. Under the Rules, once a liquidator is appointed claims and cross claims cease to be capable of separate enforcement and are replaced by a single debt. That means that on liquidation an account needs to be taken of the dealings to arrive at a single balance due one way or the other. The court held that the power to determine the balance was not one granted to adjudicators under the Construction Act but was one governed by the insolvency regime.

In addition, the court took the opportunity to once more warn parties against inappropriate use of the Part 8 procedure, which is available where there is no substantial dispute on the facts. Following on from the earlier decision of the TCC in Merit Holdings Ltd –v- Michael J Lonsdale Ltd [2017] EWHC 2450 (TCC) (where Stevens & Bolton acted for the successful defendant), the court made clear that  Part 8 proceedings will only be entertained by the court where there is no substantive dispute on the facts, and warned  “it should not be seen as a means for parties to obtain favourable treatment in terms of having resolution by the court performed more quickly, and to a preferential timetable, than other litigants”.

This is a very significant judgment. Whilst there is still the possibility of bringing adjudication claims for non-monetary relief open to liquidators, in practice this may not provide any meaningful redress to companies in liquidation. 

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