Insolvency in construction - resolving disputes through adjudication

Catherine Gilbert
Accredited Mediator | Catherine Gilbert Mediation
5th February 2019
Member roleChamber member

As well as being a mediator, helping construction stakeholders to resolve their disputes through mediation, I'm also a practising solicitor and adjudicator.

A very recent Court of Appeal judgment caught my eye. It's an area which might catch out the unwary, so if you're involved in construction, read on.

Insolvency in construction - it's a perennial issue. The Court of Appeal has just given a judgment on whether insolvent companies can adjudicate. It's not quite the decision you might imagine it to be. In short, the Court of Appeal has decided that companies in liquidation CAN, as a matter of principle, refer a dispute to adjudication.

Any adjudicator will have jurisdiction to decide the referred dispute. This differs from the earlier TCC decision in the Bresco case. But, crucially, the Court of Appeal also looked at the commercially relevant question of "utility". Where the insolvent company is facing a cross-claim - a pretty common situation - it will not be able to enforce any adjudication decision that it obtains in its favour.

This means that the insolvency rules and the adjudication regime are - basically - incompatible. While, theoretically, liquidators may still be able to refer disputes to adjudication, it would be an empty victory as they would not be able to enforce it. In fact, the Court of Appeal said, any attempted adjudication would be "futile", using up resources of the insolvent company, without any ability to recovery costs.

The Court of Appeal has therefore made it clear that there is a fundamental incompatibility between the insolvency set-off rules and the adjudication regime. Unless exceptional circumstances apply, the Court of Appeal decision indicates that the courts will now grant injunctions to prevent adjudications referred by insolvent companies.

Be careful though - this decision relates to a company in liquidation. The situation may well be different for companies in administration or in a CVA.

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