Adjudication jurisdiction and reservations of rights

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The Court of Appeal recently addressed two linked appeals in Bresco Electrical Services v Michael J Lonsdale and Cannon Corporate v Primus Build. The issue in both was whether insolvent companies can commence adjudications. This is significant due to the interim nature of adjudications and the uncertainty surrounding an insolvent company’s ability to repay any awards. However, the court also dealt with an important point on waiver and reservations of rights to raise jurisdictional challenges.

The TCC

Bresco was sub-sub-contracted to Lonsdale on an office refurbishment project in London. Bresco was placed in liquidation and subsequently sought to refer a dispute to adjudication. Lonsdale commenced a Part 8 claim to prevent it from doing so. The TCC held that a company in liquidation cannot refer a dispute to adjudication if it is claiming a payment from the other party.

Cannon appointed Primus to design and build a hotel in central London. There was a dispute that resulted in four adjudications between them. Prior to the fourth, Primus had entered into a CVA. When Primus commenced proceedings to enforce the adjudication decision, Cannon argued that there should be a stay of execution due to the CVA. The TCC refused the stay and enforced the adjudicator’s decision.

On Appeal

The Court of Appeal held In Bresco that an adjudicator could have jurisdiction where the referring party was in liquidation but that adjudication was “incompatible” with insolvency. Therefore it was appropriate for the courts to grant injunctions to restrain adjudications commenced by insolvent parties. In contrast, Primus was allowed to enforce the adjudicator’s decision largely because CVA’s are designed to allow a company to “trade its way out of trouble” and Primus was likely to avoid liquidation if it was allowed to do so.

Cannon had also sought to argue for the first time, at appeal, that the adjudicator had no jurisdiction due to the CVA. It had not raised this argument in the adjudication itself but it had made a general reservation of rights (in correspondence) to raise any jurisdictional and/or other issues. The court held that the general reservation was too vague to be effective. Parties should raise specific objections to jurisdiction. Cannon had waived its right to raise this jurisdictional argument because it had participated in the adjudication without raising an effective reservation.

Analysis

There are a couple of important points to note from these decisions. Firstly, adjudicators have jurisdiction to decide claims referred by insolvent parties. Secondly, companies in liquidation are unlikely to be able to enforce adjudication decisions (although companies operating under CVAs are more likely to be able to do so).

The third, and arguably most important, point is that general reservations to raise jurisdictional arguments at a later stage may not be effective. This has potentially significant implications as this type of general reservation seems to be used in most adjudications. The position, post-Cannon, is that any jurisdictional challenges should be raised in full at the outset of an adjudication and not delayed until the enforcement stage.

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