The UK Supreme Court in Bresco Electrical Services Ltd (in liq) v Michael J Lonsdale (Electrical Ltd) [2020] UKSC 25 has decided that the adjudication regime for building disputes is not incompatible with the insolvency process.

In that case, Bresco and Lonsdale are both electrical contractors.  In 2014, Bresco carried on installation work for Lonsdale at a construction site.  In 2016, Bresco went into liquidation.   Both companies claimed they were owed money by the other.  In 2018, Bresco's liquidators took steps to refer the claim to an adjudicator.  Lonsdale objected to the adjudication on the basis that insolvency set-off applied to cancel out the claim and cross-claim so there was no dispute under the contract to adjudicate. 

The Supreme Court held that the adjudicator does have jurisdiction.  The Court found that the insolvency set-off between Bresco’s claim and Lonsdale’s cross-claim does not mean that there is no longer a dispute under the construction contract, or that the claims have simply melted away.  The Court further considered that proceeding with adjudication would not be futile as it will be a simple, proportionate method for Bresco’s liquidators to determine the net balance.  Adjudication also has the 'added advantage' that a construction dispute arising during an insolvency will be more amenable to resolution by a professional construction expert than by many liquidators. 

Whether adjudication is available to liquidators or receivers in New Zealand is not clear and this litigation in the UK has not yet been discussed by the New Zealand courts.  However, this decision will likely be highly influential. 

The decision can be found here.