The New South Wales Supreme Court recently confirmed that an insolvent construction contractor is not able to immediately enforce its right to payment of an adjudication decision under the NSW Security of Payment legislation (Building and Construction Industry Security of Payment Act 1999 (NSW)) against another party which has an offsetting claim.

New legislation has been introduced in the UK which restricts the rights of parties to construction contracts to terminate or even suspend work. This means that even if your contract says you can terminate or suspend – for example, for non-payment – you may not in the future be able to exercise this right. These reforms are likely to lead to significant changes to how parties operate their contracts and credit lines.

In standard building contracts most commonly used in the UK, a party is entitled to terminate the contract if the other party is insolvent (Clause 91 of NEC3 and NEC4 and Clause 8.5 and 8.10 of JCT/SBCC).

The Corporate Insolvency and Governance Act 2020 provides measures for businesses that are designed to provide temporary reliefs during the COVID-19 pandemic, as well as permanent measures for companies in financial difficulty.

On 17 June 2020, the much anticipated Judgment in the Supreme Court case of Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd [2020] was handed down.

This article analyses the key outcomes of the decision, however, in order to contextualise the Judgment we first provide an overview of the relevant background.

The Technology & Construction Court

In light of the fast moving pace of developments on COVID-19, and the varying degrees to which information is available to our clients in the projects & construction sector in relation to its impact on their operations, we will be circulating a regular update that addresses the following:

Summary

The Corporate Insolvency and Governance Act 2020 (CIGA 2020) came into force on 26 June 2020 after a fast-tracked consultation process. Intended to provide a lifeline to struggling businesses during the COVID-19 pandemic and beyond, it consists of temporary measures, meant to alleviate the short-term disruption caused by the pandemic and permanent measures, which are more broadly designed to assist companies in times of difficulty.

• The Corporate Governance and Insolvency Act (CGIA) came into force on 26 June 2020, with the intention of providing businesses in financial difficulty with flexibility and breathing space and additional assistance (such as the protection of supplies) in order to maximise their chances of survival.
• It contains a number of provisions which will impact on construction contracts and professional appointments, in particular on the rights of a supplier under a contract for the supply of goods and services (e.g.

It is an unfortunate reality that the number of insolvencies in the construction sector seems certain to rise in coming months as the economic impact of COVID-19 takes effect. In this context, the recent Supreme Court decision in Bresco Electrical Services Ltd (In Liquidation) v Michael J Lonsdale (Electrical) Ltd [2020] UKSC 25 is particularly relevant.

This case concerned important questions regarding the compatibility of two statutory regimes:

The long running question of whether a contractual dispute relating to a breach of a construction contract can be the subject of Adjudication, if one of the parties is in Liquidation, and there are cross claims for insolvency set off was settled by The Supreme Court. Needless to say the two parties both claimed breach of contract and damages. The contract allowed for a dispute to be resolved by Arbitration which the sub-contractor Bresco wished to pursue. This was opposed on the basis of incompatibility between insolvency set-off, and an argument that the adjudicator lacked jurisdiction.

Introduction

With grimly apposite timing, in June, the Supreme Court gave its decision in Bresco Electrical Services Ltd (in Liquidation) v Michael J Lonsdale (Electrical) Ltd and turned on its head the construction industry’s understanding of an insolvent company’s right to pursue an adjudication. It will fundamentally affect construction insolvencies.