Jurisdiction The relatively narrow issue for decision was based on the right of party to refer a dispute to adjudication “at any time” given by s108 of the Act. Lonsdale said that such right was lost when Bresco went into liquidation as there ceased to be any claim under the contract because it was replaced with a single claim to the balance (if any) arising out of the mutual dealings and set-off between the parties following the taking of the account required by rule 14.25 (2) of the Insolvency Rules 2016. The Court referred to the leading case on the operation of the similarly worded (i.e. identical in all material respects) provision in section 323(2) of the Insolvency Act and rule 4.90 of the Insolvency Rules 1986. 8 The Court also had regard to the judgment of Coulson J (as he then was) in another case considering these rules. 9 Lonsdale relied on Enterprise and the decision in Bouygues 10 as authority for their proposition that the claim ceased to exist at the liquidation and was replaced by the net claim after the taking of the account under the Insolvency Rules. That was the argument accepted by Fraser J. Lonsdale however conceded that Bresco would have been entitled to bring their contractual claim in Court proceedings; and the same claim at arbitration. That begged the question: how was adjudication different? The Court concluded that as a pure matter of jurisdiction there was no reason to treat a reference to adjudication any differently from a reference to arbitration. If the contractual right to refer the claim to arbitration was not extinguished by the liquidation, then the underlying claim must continue to exist for all purposes; choice of forum could not dictate whether or not a claim exists. The temporarily binding nature of adjudication did not somehow deprive the adjudicator of any jurisdiction. And of course the outcome may be final or become final. The Court concluded that HHJ Purle QC was right when he said that technically the adjudicator would have jurisdiction to consider the claim advanced by a company in liquidation. 11 Any suggestion made in Enterprise to the contrary was wrong. Utility There was a basic incompatibility between adjudication and the insolvency regime set out in the Insolvency Rules. The former was a rough and ready regime about improving cash flow and the latter was an abstract accounting exercise designed to assist liquidators in recovering assets. They could lead to very different results. Very often claims referred to adjudication were not ostensibly claims for a net balance of the sort envisaged by 14.25 of the Insolvency Rules 2016 but a part only of the overall claim which the company in liquidation may wish to make i.e. it is the claim that has arisen at that stage of the contract for example for an interim payment. The determination of that sort of claim could only ever be part of the necessary accounting exercise. In the absence of a pay less notice, the payee would then have to pay the claim and any cross claim e.g. for a true valuation, or defects or delay etc., would have to be the subject of subsequent adjudication.
The Court then looked at what might happen if the company in insolvent liquidation was found to be entitled to the sum found due but where the responding party had a cross claim. The latter if found entitled would only receive a dividend and lose the benefit of treating the claim as security for its cross claim. Therefore in the ordinary case, summary judgment to enforce the adjudicator’s decision would not be available; or execution of the judgment would be stayed. The authorities therefore acknowledged that a decision in these circumstances would ordinarily not be enforced by the Court. It might be putting it too high to say such enforcement was “inconceivable” but enforcement would only be available in an exceptional case. Either a refusal of summary judgment or a stay was the most likely outcome. Wider considerations There were wider considerations that pointed to the futility of adjudication when a company was in insolvent liquidation and there were cross claims. (a) A liquidator often has limited assets with which to pursue the claims of an insolvent company and it would be a waste of those assets to make claims which could not be enforced or at best only in exceptional circumstances. (b) There was no benefit to a liquidator in having a decision purely to establish a reduction in a creditor’s proof or to stand as an estimate or some sort of assessment of the value of the claim. A sum found due by an adjudicator at a point in time might be far removed from any final entitlement. (c) It would be wrong in principle that a responding party should incur costs in defending a claim at adjudication, when if even if he was unsuccessful, he would still resist summary judgment or enforcement but only at yet further cost. (d) Suppose a company in insolvent liquidation was to obtain summary judgment, the responding party would then have to bring its own claim in Court to overturn the result, requiring yet more costs to be incurred at the obvious risk of being unable to recover its entitlement. That would also be wrong in principle. (e) Finally the already overstretched Court resources would be put under further strain dealing with contested enforcement applications brought in the hope of seeing how things might turn out, with adverse effects on other Court users. The two regimes were incompatible from the outset and the Court rejected the notion that they could be made to work together by way of the enforcement process.
4
Made with FlippingBook Online document