Practical Law

It was only published at the end of last week, so I’m not sure if you’ve had chance to look at Coulson LJ’s judgment in Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd, Cannon Corporate Ltd v Primus Build Ltd.

If not, then you should. It contains some important stuff about liquidation and CVAs, and when it is appropriate (and possible) to adjudicate if the referring party is subject to one of those processes. I’m hardly giving the game away to say that you can’t if the party is in liquidation, but you can if it is subject to a CVA. As ever, it is a bit more complicated than that because, although Coulson LJ decided that the adjudicator has jurisdiction in both cases (to borrow Mr Crangle’s phraseology), it will be “an exercise in futility” if the referring party is in liquidation. This was described as theoretical jurisdiction and led Coulson LJ to conclude that adjudication and the insolvency regimes are incompatible. In his view, the solution to that incompatibility is for a court to grant an injunction to prevent an adjudication from continuing and to prevent the liquidator and, more importantly, the responding party from wasting costs.

It is all very interesting and I’m sure we will see plenty of column inches devoted to these aspects of the judgment. However, I think the waiver points applicable to jurisdictional reservations that are discussed in the Cannon v Primus part of the judgment are of greatest use to parties and those representatives who deal with adjudications on a day to day basis. After all, how often do adjudications involve insolvent parties? I certainly haven’t dealt with one for some time now. By contrast, I see general (and specific) reservations all the time. Therefore, waiver is what I plan to focus on today.

Cannon v Primus

In May 2015, Cannon engaged Primus  to design and build a hotel on the Albert Embankment in London. By July 2015, the parties were in dispute over one of Primus’ payment notices and in August 2015 Cannon served a notice of termination ordering Primus to leave site the same day, which it did.

As each party alleged the other was in repudiatory breach of contract, the matter was resolved by adjudication. In November 2016, the second adjudicator (Dr Christopher Thomas QC) decided that Cannon was in repudiatory breach of contract. In March 2018, the fourth adjudicator (Mr Matt Molloy) decided that Primus was entitled to some £2.128 million in damages. In arriving at that sum, the fourth adjudicator addressed and “almost entirely” rejected Cannon’s cross-claims. (The third adjudication dealt with the July 2015 payment notice.)

The fourth adjudicator’s decision went unpaid and, in May 2018, Primus commenced proceedings to enforce the adjudicator’s decision. These proceedings came before HHJ Waksman QC and I’ll come back to this shortly.

Prior to the fourth adjudication, in January 2017, Primus started court proceedings claiming damages for repudiatory breach of contract and unpaid sums arising out of the third adjudication, and obtained an ex parte freezing order up to the value of £750,000. Cannon subsequently gave an undertaking to the court that it would not “dissipate or otherwise deal with the hotel” in a way that would reduce its value below £2.7 million. In May 2018, Primus successfully defended a claim for security for costs, with O’Farrell J noting that it had “a very strong case that its financial difficulties have been caused in large part by [Cannon’s] wrongful termination”.

More importantly, in July 2017, Primus entered into a CVA.

Enforcement proceedings 

For whatever reason, Primus’ CVA did not feature in Cannon’s submissions in the fourth adjudication or the subsequent enforcement proceedings. Cannon initially conceded that summary judgment could be entered against it, but argued there should be a stay of execution. It then withdrew this concession, before then reconfirming it. It was only when HHJ Waksman QC referred the parties to Akenhead J’s judgment in Westshield Ltd v Whitehouse after the hearing that Cannon was alive to the arguments about the CVA and for a second time, withdrew its concession.

HHJ Waksman devoted a number of paragraphs to analysing Westshield and concluded that Akenhead J was not saying that, merely because a company was in a CVA, summary judgment should be refused. There was no general rule. Nor did it follow that the court must grant a stay of execution.

He then turned his attention to whether there should be a stay of execution. He relied on the principles in Wimbledon v Vago, and concluded that paragraph 26(f)(ii) was relevant: Primus’ financial position was due either wholly or in significant part due to Cannon’s repudiation and failure to pay. No stay was granted.

Before the Court of Appeal

When the matter came before the Court of Appeal, before considering the summary judgment and stay points, Coulson LJ dealt with what I think is the most interesting aspect of this judgment – Primus’ contention that  Cannon had waived its right to raise the jurisdictional objection before the Court of Appeal. However, as the other points can be dealt with very shortly, I will mention those findings first. Essentially, he agreed with HHJ Waksman and:

• Rejected Cannon’s argument that there was a “compelling reason to refuse summary judgment”. Cannon had relied on Chadwick LJ’s judgment in Bouygues v Dahl-Jensen and suggested there was no reason to distinguish between liquidation and a CVA. Coulson LJ disagreed and thought Bouygues was of little assistance. Summary judgment was appropriate.
• Confirmed that a CVA was not a reason to refuse a stay. In Mead General Building Ltd v Dartmoor Properties Ltd, one of the relevant factors had been whether the claimant’s financial position was due either wholly or in part to the failure to pay the sum awarded by the adjudicator (paragraph 26(f)(ii) of Wimbledon v Vago). That was also relevant here, and was a view held by both O’Farrell J and HHJ Waksman.

Cannon’s jurisdictional waiver

Primus argued that Cannon could not raise the CVA point before the Court of Appeal when it had not been raised before the fourth adjudicator or at first instance. Coulson LJ agreed. To arrive at this conclusion he addressed a number of authorities before pulling it together in a neat set of principles on waiver and general reservations:

• A responding party wishing to challenge the adjudicator’s jurisdiction 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 Ltd v Paradigm Housing Group Ltd).
• It will always be better for a party to rely on a specific objection or objections to reserve its position. 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 Contractors Ltd v Ringway Infrastructure Services Ltd).
• If the adjudicator rejects the specific jurisdictional objections raised (and the court, if the objections are renewed on enforcement), then the objector is precluded from raising other jurisdictional grounds that might otherwise have been available to it (GPS Marine).
• A general reservation of position on jurisdiction is undesirable but may be effective (GPS Marine, Aedifice Partnership Ltd v Shah). Much will turn on the wording of the reservation in each case. However, a general reservation may not be effective if:
  • 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 (A Firm) v Holbeton Ltd); or
  • 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 ESI CHP (Wrexham) Ltd v Bester Generacion UK Ltd).

I think the fourth bullet point is of most use to parties to adjudications and their representatives, and has helped to resolve the arguable uncertainty regarding the first instance decisions on general reservations.  I see this type of reservation made by responding parties on almost all of the adjudications on which I’m appointed, but their effectiveness may well now be questionable.

Cannon had made a general reservation in the fourth adjudication:

“[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.”

It had also raised a couple of specific challenges, which the adjudicator had rejected, but there was no mention of the CVA.

In terms of applying these principles to the facts of the case, I thought it was really interesting to note that Coulson LJ said that Cannon’s reservation was so vague as to be ineffective:

“It appears to suggest that Cannon might wait before unleashing a jurisdictional objection in ‘other proceedings’, namely after the adjudication and at the enforcement stage. That is precisely the sort of approach to adjudication which, in my view, the courts should be vigilant to discourage.”

Although Coulson LJ made much of the fact that Cannon didn’t raise its jurisdictional objection at first instance, from my reading of his principles, they may well have been unable to rely on it in the High Court in any event.

Will this be the end of general reservations?

In terms of addressing the question I posed in the title, I don’t think this is the end of the general jurisdictional reservation because what harm can it do to include it? Furthermore, it will clearly be fact dependent – Coulson LJ made it clear that a “general reservation may not be effective”, so there is some wriggle room here!