Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd & (1838) Cannon Corporate Ltd v Primus Build Ltd

[2019] EWCA Civ 27

The Cannon case was heard at the same time as the Bresco appeal, although if searching for it, the case will be found under the Bresco name and reference. Here, there was a lengthy procedural history culminating in Cannon resisting summary judgment of an adjudication decision on the basis that Primus might not be able to repay the sums, because Primus was in a CVA. The Judge at first instance said:

“On any view if Primus was to make all or most of its recovery it will emerge solvent with all debtors paid and something left over, and that was the basis for having the CVA to enable it to do so.”

As LJ Coulson said, this was a very different case to the situation where the claiming company was in insolvent liquidation and a liquidator was engaged to recover what he could in order to make a distribution to creditors. Here, not only was the CVA designed to allow Primus to trade out of its difficulties but, ultimately, Primus would avoid liquidation altogether. The key issue was whether Primus’ financial position was due, either wholly or in significant part, to Cannon’s repudiation and failure to pay the relevant sums. It was, and the Judge at first instance did not grant a stay. 

A CVA is designed to try and allow the company to trade its way out of trouble. In those circumstances, LJ Coulson thought that the “quick and cost-neutral mechanism” of adjudication may help permit the CVA to work. Accordingly, courts should be wary of reaching any conclusions which prevent a company from endeavouring to use adjudication to trade out of its difficulties. That is what adjudication is there for: to provide a quick and cheap method of improving cash flow: a different approach to where a company is in liquidation.

However, there was another issue which the CA considered. This was whether or not Cannon had waived or lost the right to make the argument that the adjudicator did not have jurisdiction to make a claim against the party in the CVA. LJ Coulson restated the applicable principles on waiver and general reservations in the adjudication context: 

“i) If the responding party wishes to challenge the jurisdiction of the adjudicator then it must do so “appropriately and clearly”. If it does not reserve its position effectively and participates in the adjudication, it will be taken to have waived any jurisdictional objection and will be unable to avoid enforcement on jurisdictional grounds (Allied P&L). 

ii) It will always be better for a party to reserve its position based on a specific objection or objections: otherwise the adjudicator cannot investigate the point and, if appropriate, decide not to proceed, and the referring party cannot decide for itself whether the objection has merit (GPS Marine).

iii) If the specific jurisdictional objections are rejected by the adjudicator (and the court, if the objections are renewed on enforcement), then the objector will be subsequently precluded from raising other jurisdictional grounds which might otherwise have been available to it (GPS Marine). 

iv) A general reservation of position on jurisdiction is undesirable but may be effective (GPS Marine; Aedifice). Much will turn on the wording of the reservation in each case. However, a general reservation may not be effective if:

i) At the time it was provided, the objector knew or should have known of specific grounds for a jurisdictional objection but failed to articulate them (Aedifice, CN Associates); 

ii) The court concludes that the general reservation was worded in that way simply to try and ensure that all options (including ones not yet even thought of) could be kept open (Equitix).”

Here, Cannon’s solicitors emailed the adjudicator on 17 March 2018, noting that: “the Responding Party (Cannon) reserves its right to raise any jurisdictional and/or other issues, in due course, whether previously raised or not and whether within the forum of adjudication or other proceedings”. The Judge said that this reservation was: 

“so vague - perhaps deliberately so - as to be ineffective.”

The Judge thought that it appeared to suggest that Cannon might wait before unleashing a jurisdictional objection in “other proceedings”, namely after the adjudication and at the enforcement stage. LJ Coulson was clear that this was just the sort of approach to adjudication that the courts: “should be vigilant to discourage”. At no point did Cannon raise the argument that the adjudicator did not have the necessary jurisdiction because Primus were the subject of a CVA, nor did they before the Judge at first instance. On appeal, Cannon sought to raise a specific jurisdiction point for the first time. This was refused because the point had not been the subject of any specific reservation (despite the fact that Cannon knew or should have known about the point) and the general reservation did not cover it and was subsumed by the specific objections that followed. 

See Issue 241 for details of the Supreme Court decision.

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