Richard Heis & Others As Joint Administrators Of Connaught Partnerships Ltd (in Admin) V. Perth & Kinross Council

JurisdictionScotland
JudgeLord Malcolm
Neutral Citation[2013] CSOH 149
CourtCourt of Session
Docket NumberCA145/12
Date04 September 2013
Published date11 September 2013

OUTER HOUSE, COURT OF SESSION

[2013] CSOH 149

CA145/12

OPINION OF LORD MALCOLM

in the cause

RICHARD HEIS & OTHERS AS JOINT ADMINISTRATORS OF CONNAUGHT PARTNERSHIPS LTD (IN ADMINISTRATION)

Pursuers;

against

PERTH & KINROSS COUNCIL

Defenders:

________________

Pursuers: Currie, QC, M Hamilton; Pinsent Masons LLP

Defenders: Moynihan QC, Richardson; DWF Biggart Baillie

4th September 2013

[1] This action concerns the impact of an insolvency on an adjudication conducted under the regime imposed by the Housing Grants, Construction & Regeneration Act 1996. The background circumstances are as follows. In 2007 Perth & Kinross Council (the defenders) employed Connaught Partnerships Ltd to supply, install and refurbish bathrooms in 7,500 houses. In September 2010, by court order, Connaught was placed in administration. The administrators (the pursuers) have assessed the amount owed to unsecured creditors at approximately £160m. Each will receive, at best, a small proportion of the prescribed part of £600,000. The administrators have sold certain of the book debts to another company and have entered into an agency agreement, the effect being that it is that other company which has the direct financial interest in the outcome of the present proceedings.

[2] A dispute arose as to the pursuers' entitlement to any further payment following the submission of a revised final account in January 2011. The defenders contended that the pursuers had already been paid more than was due. The dispute was referred to adjudication. The defenders were ordered to pay the pursuers a sum of almost £679,000 plus interest and VAT - giving a total of £835,000 or thereby. The court is now asked to enforce that award. There was no dispute that if decree is granted, in effect, that will be the final resolution of the matter. In the event that the matter were to proceed to a judicial or arbitral determination, and be resolved in favour of the defenders, the maximum which the defenders could hope to receive from the insolvent company is £3,000 or thereby, being a dividend of less than 0.4 pence in the pound. For the defenders, Mr Moynihan QC submitted that this simple fact alone is sufficient to justify refusal of decree enforcing the adjudicator's award. Not only would the defenders be unable to recover the vast bulk of the sum paid over, their counterclaim, which is based on allegedly defective works under the contract, would be next to worthless.

[3] For the pursuers, Mr Currie QC resisted all of this on the basis that the defenders' plea, which is based upon the principle of the balancing of accounts in bankruptcy, was not relevantly placed before the adjudicator. As a result she was not required to address it in her decision and reasoning. Furthermore, it follows that the court should refuse the defenders' request to apply the doctrine now. Mr Currie relied upon the decision in Construction Centre Group Ltd v Highland Council 2003 SC 464. Mr Moynihan countered by asserting that the issue was properly stated in the defenders' submissions to the adjudicator. However, even were that not the case, it can be relied upon and applied now at the enforcement stage, otherwise a gross injustice would be perpetrated.

[4] Both counsel made reference to a number of cases, including Melville Dundas Ltd v George Wimpey UK Ltd (2007) SC (HL) 116; Inveresk Plc v Tullis Russell Papermakers Ltd 2010 SC (UKSC) 106; Integrated Building Services Engineering Consultants Ltd (t/a Operon) v Pihl UK Ltd [2010] BLR 622; and Pilon Ltd v Breyer Group Plc [2010] BLR 452.

[5] At the outset it is worth noticing the jurisprudence on this subject south of the border. In an early case (Rainford House Ltd v Cadogan Ltd [2001] BLR 416) Judge Richard Seymour QC described adjudication as

"a swift mechanism by which a dispute under a construction contract as to who has to pay what to whom while the construction work to which the contract relates is in progress can be resolved on a binding, but interim, basis, leaving the final resolution of disputes, if that proves to be necessary, to follow at leisure, without disrupting the cash-flow of the project".

There was no intention that the adjudication regime under the 1996 Act should transfer the risk of insolvency to one of the parties. The purpose was to decide which party is to hold the fund of money pending a final resolution of the dispute, all on the footing that both parties are solvent. Under reference to observations of Chadwick LJ in Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd [2000] BLR 522, Judge Seymour continued:

"If there is credible evidence that the claimant is insolvent...that is a highly material matter for the court to consider in relation to any application for a stay of execution of the judgment in favour of the claimant".

There was unchallenged evidence that the claimant was insolvent at the date of the hearing, thus a stay was granted unless and until security for repayment was provided.

[6] In Enterprise Managed Services Ltd v Tony McFadden Utilities Ltd [2010] BLR 89, Coulson J quoted from an earlier decision to the effect that if the claimant is insolvent, a stay will usually be granted, otherwise the defendant may never recoup his money "if the adjudicator turns out to be wrong". Mr Moynihan drew attention to the subsequent decision of Coulson J in Pilon Ltd, where his Lordship reviewed some of the case law, including Wimbledon Construction Company 2000 Ltd v Derek Vago [2005] BLR 374. The general position in England and Wales is that, unless the claimant's finances were in much the same state at the date of the contract, or have been made parlous because of the defendant's refusal to comply with the award, and if the claimant is insolvent, a stay of execution will usually be granted. (It was not suggested that either qualification applies in the present case.)

[7] In Straw Realisations (No.1) Ltd (in administration) v Shaftsbury House (Developments) Ltd [2011] BLR 47, Edwards-Stuart J discussed Lord Hodge's decision in Integrated Building Services, and the different procedural and substantive law on either side of the border. He agreed that

"once there has been some event, such as a court order, that affects the assets of one of the parties or the ability of a party to bring proceedings to challenge a decision of an adjudicator, the position becomes different and the order of priorities between the need to enforce the decision of adjudicators and the need to implement the rules of insolvency, shifts in favour of the latter" (paragraph 84).

[8] Turning to the position in Scotland, neither counsel mounted any challenge to the reasoning of Lord Hodge in Integrated Building Services. Mr Currie sought to distinguish the case by stressing that the insolvency event occurred after the adjudicator's award, thus the point could not have been taken earlier. Lord Hodge described it as a case of "supervening insolvency". In my view counsel were right not to take issue with Lord Hodge's decision. The following can be derived from it:

(1) The solution adopted in England and Wales can be achieved in Scotland by operation of the principle of the balancing of accounts in bankruptcy (at least in practical terms).

(2) As Lord Hodge said at paragraph 16:

"...the provisional nature of the adjudicator's decision and the reservation of a final determination to another decision maker are important characteristics of (adjudication) procedure".

The speed of the adjudication may not allow parties to present their position in full - but that is in the...

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8 cases
  • J & A Construction (scotland) Limited V. Windex Limited
    • United Kingdom
    • Court of Session
    • 30 October 2013
    ...inopiam). [6] I recently reviewed this area of the law in Connaught Partnerships Limited (in administration) v Perth & Kinross Council [2013] CSOH 149. I noted that in England and Wales, and subject to certain qualifications, a stay of execution of summary judgment will usually be awarded i......
  • Nkt Cables A/s Against Sp Power Systems Limited
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    • Court of Session
    • 8 March 2017
    ...the adjudicator required to deal with it and cannot ignore it: Connaught Partnerships Ltd (in administration) v Perth & Kinross Council, 2014 SLT 608 (“Connaught”), per Lord Malcolm at paragraph [19]. Sufficiency of Reasons [43] In relation to the sufficiency of an Adjudicator’s reasons, th......
  • Atalian Servest Amk Limited Against B W (electrical Contractors Limited)
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    • Court of Session
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    ...Limited v Highland Council 2002 SLT 1274 at [19] and [20]; Connaught Partnerships Limited (in administration) v Perth & Kinross Council 2014 SLT 608 at [18], [19] to [21]; Barhale Limited v SP Transmission plc 2021 SLT 52 at [32]; Amec Group Limited v Thames Water Utilities Limited [2010] E......
  • Agb Scotland Limited Against Darren Mcdermott
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    • Court of Session
    • 16 May 2023
    ...Group Limited v Highland Council 2002 SLT 1274 at [19], Connaught Partnerships Limited (in administration) v Perth & Kinross Council [2013] CSOH 149, 2014 SLT 608 at [18] to [21], Barhale Limited v SP Transmission plc [2021] CSOH 2, 2021 SLT 852 at [26], [31] - [33], Hochtief Solutions AG v......
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1 books & journal articles
  • Examining “Equitable” Retention
    • United Kingdom
    • Edinburgh Law Review No. , January 2016
    • 1 January 2016
    ...decision was referred to with approval by Lord Malcolm in Joint Administrators of Connaught Partnerships Ltd v Perth and Kinross Council 2014 SLT 608. Lord Hodge acknowledged the lack of consensus on this matter.5757Integrated Building Services para [23]. His Lordship did not come to a conc......

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