CM September 2020

LEGAL MATTERS
AUTHORS – Jackie Ray FCICM and Jennifer Guthrie
In the Court of Appeal, the Jurisdiction
argument was overturned, but the Court
of Appeal introduced a new argument, on
the basis of ‘futility’.
Lord Briggs’ judgment confirms a strong belief that
there is no conflict between the insolvency set-off
regime and the construction adjudication process.
The ‘conflict’ that had been perceived between the
regimes was caused by an over-literal reading of the
judgment of Lord Hoffman in Stein v Blake.
FAR-REACHING CONSEQUENCES
The Supreme Court’s decision thus has farreaching
consequences for liquidators (and,
by extension, administrators) of construction
companies where there are outstanding
contractual disputes, and for the counterparties
to those contracts. It makes clear that
there is no conflict between insolvency set-off
and Adjudication, and clarifies the scope of the
Adjudication regime as a mechanism for practical
and speedy resolution of construction contract
claims.
Lord Briggs’ judgment confirms a strong belief
that there is no conflict between the insolvency
set-off regime and the construction adjudication
process. The ‘conflict’ that had been perceived
between the regimes was caused by an over-literal
reading of the judgment of Lord Hoffman in Stein
v Blake. Lord Hoffman never suggested that the
underlying causes of action lost their separate
identity entirely – simply that all that could be
assigned after liquidation is the net balance.
The positive news for creditors is that the
insolvent party may be able to recover monies
validly owed to it through the Adjudication
process which is a quick and, in relative terms,
fairly low-cost alternative to Court proceedings.
So how easy is it now for Administrators
and Liquidators to use the adjudication process?
There are still some pragmatic and commercial
issues for Administrators and Liquidators to
consider. Although the Supreme Court has
made clear that a company in insolvency has an
unfettered right to use Adjudication, that isn’t
quite the end of the story. As a starting point, there
are the Adjudicator’s fees to consider – in many
insolvent construction companies, there simply
isn’t the money to take the risk on those fees.
There is also an open question on enforcement,
which the Supreme Court effectively left to the
first instance court to determine on a case-bycase
basis.
Could this mean greater returns in respect of
construction insolvency matters? In principle,
yes. The judgment will allow an alternative
for Liquidators from funding litigation against
entities who consider that, because of the
insolvent status of the potential Claimant,
payments can be withheld and spurious claims,
can be made reducing liability.
The authors believe this is a significant case,
and one with such widespread importance – as
was recognised by the Supreme Court in granting
leave to appeal in the first place – that it had to be
pursued. We believed that the decisions in Bresco
were wrong. Our senior counsel from both Court
of Appeal and Supreme Court, Peter Arden QC,
agreed. And, nearly two years after the initial
injunction, our persistence has been rewarded.
Jackie Ray FCICM, Partner, and Nina Bhatti,
Solicitor, of Blaser Mills LLP acted for Bresco’s
liquidator (through its appointed agent
Pythagoras Capital) in the successful appeal to
the Supreme Court in June 2020.
Advancing the credit profession / www.cicm.com / September 2020 / PAGE 23