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England and Wales High Court (Technology and Construction Court) Decisions
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Cite as:  EWHC 2043 (TCC)
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BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
TECHNOLOGY AND CONSTRUCTION COURT (QB)
Strand, London, WC2A 2LL
B e f o r e :
| MICHAEL J LONSDALE (ELECTRICAL) LIMITED
|- and -
|BRESCO ELECTRICAL SERVICES LIMITED (IN LIQUIDATION)
David Sears QC and Niall McCulloch (instructed by Blaser Mills LLP) for the Defendant
Hearing dates: 11 July 2018
Draft distributed to parties 25 July 2018
Crown Copyright ©
Mr Justice Fraser:
"A dispute has arisen between the parties under the Contract. Bresco seeks the appointment of an Adjudicator to make the following decisions:
a. Whether Lonsdale committed a repudiatory breach on 8 December 2014 by employing others to complete the Works.
b. Whether Bresco is entitled to be paid for the work that it had completed prior to Lonsdale's repudiatory breach.
c. Whether Bresco had completed works to the value of £219,884.80, £193,067.80 or such other sum as the Adjudicator may decide prior to Lonsdale's repudiatory breach.
d. Whether Bresco is entitled to be paid for the works that it had completed, but for which it has not been paid, pursuant to the Contract, as a matter of quantum meruit or otherwise.
e. Whether Bresco is also entitled to damages for loss of profits for Works that it had not completed as a consequence of Lonsdale's repudiatory breach.
f. Whether Lonsdale is not entitled to deduct, from the sums that it owes Bresco, any completion costs or other sums. Alternatively, what sums is Lonsdale entitled to deduct.
g. What interest is Bresco entitled to be paid pursuant to the Contract, the Late Payment of Commercial Debts (Interest) Act 1998 or otherwise."
"that issues could be resolved in the Part 8 proceedings on the basis of assumed facts, but that in the event of the decision being unfavourable to his client, he would then be in a position to challenge any disputed matters of fact at a later time in further substantive proceedings."
"15. In developing his jurisdiction argument Mr Buckingham, on behalf of the Defendant, argued that the declarations sought by the Claimant in this case were akin to an injunction and that, by reference to the decision of HHJ Wilcox in Workplace Technologies plc v E Squared Ltd  CILL 1607, the Court did not have the necessary jurisdiction to grant such an injunction. I am not persuaded that the declarations sought here are akin to an injunction, but even if it was, I am clear that in Workplace Technologies HHJ Wilcox did not say that the Court did not have the jurisdiction to grant an injunction. What he properly emphasised was that such an injunction would only rarely be granted, which is a very different thing.
16. Mr Buckingham's other submission was that, since the declarations sought went to the Adjudicator's discretion to fix his own timetable and to conduct the adjudication in a manner which he saw fit, the Court should not entertain an application which would interfere with that discretion. In my judgment, that submission has greater force, but it does again seem to me to be a matter of fact and degree, rather than a matter of principle. Again, I would conclude that, if the Court decided that this was one of those very rare cases where the Adjudicator's exercise of his discretion was in some way fundamentally wrong in law, the Court should not sit idly by until the adjudication is finished and contested enforcement proceedings are in train.
17. Accordingly, for these reasons, I have concluded that the TCC does have the jurisdiction to consider the application for a declaration in this case. But I make it clear, as I hope I made clear in argument, that such a jurisdiction will be exercised very sparingly. It will only be appropriate in rare cases for the TCC to intervene in an ongoing adjudication. It is important that, wherever possible, the adjudication process is allowed to operate free from the intervention of the Court. Applications of this sort will be very much the exception rather than the rule. They will only be granted in clear-cut cases such as (I venture to suggest) those that existed in CJP Builders."
" I do not accept this submission. By section 37 of the Senior Courts Act 1981, the court may grant an injunction in all cases in which it appears to the court to be just and convenient to do so. In Mentmore Towers Ltd v Packman Lucas Ltd  EWHC 457 (TCC), I held that the court had jurisdiction to restrain the pursuit of an adjudication under section 37, and neither party has challenged that conclusion. I am unable to see how it would be either just or convenient to permit an adjudication to continue in circumstances where the decision of the adjudicator will be incapable of enforcement. In the present case if the adjudication went ahead and the adjudicator purported to give a decision in Twintec's favour, that decision would not be binding on VFL. Precisely the same issue would still have to be resolved in the litigation."
"that the Adjudication be stayed with neither party nor the Adjudicator taking any further step therein pending the determination of the Claimant's claim for declarations and a permanent injunction and with the Adjudicator having an extension to the date for issuing his decision corresponding with the period of the stay".
This was contained in a consent order approved by the court and sealed on 4 July 2018.
The issues for resolution
"Winding up: mutual dealings and set-off
14.25 ...1) This rule applies in a winding up where, before the company goes into liquidation, there have been mutual dealings between the company and a creditor of the company proving or claiming to prove for a debt in the liquidation.
(2) An account must be taken of what is due from the company and the creditor to each other in respect of their mutual dealings and the sums due from the one must be set off against the sums due from the other.
(3) If there is a balance owed to the creditor then only that balance is provable in the winding up.
(4) If there is a balance owed to the company then that must be paid to the liquidator as part of the assets.
(5) However if all or part of the balance owed to the company results from a contingent or prospective debt owed by the creditor then the balance (or that part of it which results from the contingent or prospective debt) must be paid in full (without being discounted under rule 14.44) if and when that debt becomes due and payable.
(6) In this rule—
"obligation" means an obligation however arising, whether by virtue of an agreement, rule of law or otherwise; and
"mutual dealings" means mutual credits, mutual debts or other mutual dealings between the company and a creditor proving or claiming to prove for a debt in the winding up but does not include any of the following—
(a) a debt arising out of an obligation incurred at a time when the creditor had notice that—
(i) a decision had been sought from creditors on the nomination of a liquidator under section 100, or
(ii) a petition for the winding up of the company was pending;
(b) a debt arising out of an obligation where—
(i) the liquidation was immediately preceded by an administration, and
(ii) at the time the obligation was incurred the creditor had notice that an application for an administration order was pending or a person had delivered notice of intention to appoint an administrator; and
(c) a debt arising out of an obligation incurred during an administration which immediately preceded the liquidation;
(d) a debt which has been acquired by a creditor by assignment or otherwise, under an agreement between the creditor and another party where that agreement was entered into—
(i) after the company went into liquidation,
(ii) at a time when the creditor had notice that a decision had been sought from creditors under section 100 on the nomination of a liquidator,
(iii) at a time when the creditor had notice that a winding-up petition was pending,
(iv) where the winding up was immediately preceded by an administration at a time when the creditor had notice that an application for an administration order was pending or a person had delivered notice of intention to appoint an administrator, or
(v) during an administration which immediately preceded the winding up.
(7) A sum must be treated as being due to or from the company for the purposes of paragraph (2) whether—
(a) it is payable at present or in the future;
(b) the obligation by virtue of which it is payable is certain or contingent; or
(c) its amount is fixed or liquidated, or is capable of being ascertained by
fixed rules or as a matter of opinion.
(8) For the purposes of this rule—
(a) rule 14.14 applies to an obligation which, by reason of its being subject to
a contingency or for any other reason, does not bear a certain value;
(b) rules 14.21 to 14.23 apply to sums due to the company which—
(i) are payable in a currency other than sterling,
(ii) are of a periodical nature, or
(iii) bear interest; and
(c) rule 14.44 applies to a sum due to or from the company which is payable
in the future."
"(1) This rule applies where, before the company goes into liquidation there have been mutual credits, mutual debts or other mutual dealings between the company and any creditor of the company proving or claiming to prove for a debt in the liquidation.
(2) An account shall be taken of what is due from each party to the other in respect of the mutual dealings and the sums due from one party shall be set off against the sums due from the other.
(4) Only the balance (if any) of the account is provable in the liquidation. Alternatively (as the case may be) the amount shall be paid to the liquidator as part of the assets."
"Bankruptcy set-off, on the other hand, affects the substantive rights of the parties by enabling the bankrupt's creditor to use his indebtedness to the bankrupt as a form of security. Instead of having to prove with other creditors for the whole of his debt in the bankruptcy, he can set off pound for pound what he owes the bankrupt and prove for or pay only the balance. So in Forster v Wilson (1843) 12 M & W. 191, 204, Parke B said that the purpose of insolvency set-off was 'to do substantial justice between the parties'. Although it is often said the justice of the rule is obvious, it is worth noticing that it is by no means universal. It has however been part of the English law of bankruptcy since at least the time of the first Queen Elizabeth."
"An account shall be taken of what is due from each party to the other in respect of the mutual dealings and the sums due from one party shall be set off against the sums due from the other"
The latter states:
"An account must be taken of what is due from the company and the creditor to each other in respect of their mutual dealings and the sums due from the one must be set off against the sums due from the other."
"mutual dealings" means mutual credits, mutual debts or other mutual dealings between the company and a creditor proving or claiming to prove for a debt in the winding up but does not include any of the following"
and exceptions then follow at Rule 14.25(6)(a) to (d). None of those exceptions apply here.
" The importance of the rule is illustrated by the circumstances in the present case. If Bouygues is obliged to pay to Dahl-Jensen the amount awarded by the adjudicator, those monies, when received by the liquidator of Dahl-Jensen, will form part of the fund applicable for distribution amongst Dahl-Jensen's creditors. If Bouygues itself has a claim under the construction contract, as it currently asserts, and is required to prove for that claim in the liquidation of Dahl-Jensen, it will receive only a dividend pro rata to the amount of its claim. It will be deprived of the benefit of treating Dahl-Jensen's claim under the adjudicator's determination as security for its own cross-claim.
 Lord Hoffman pointed out, at page 252 in Stein v Blake that the bankruptcy set-off requires an account to be taken of liabilities which at the time of the bankruptcy may be due but not yet payable, or which may be unascertained in amount or subject to contingency. Nevertheless, the insolvency code requires that the account shall be deemed to have been taken, and the sums due from one party shall be set off against the other, as at the date of insolvency order. Lord Hoffman pointed out also that it was an incident of the rule that claims and cross-claims merge and are extinguished; so that, as between the insolvent and the other party, there is only a single claim - represented by the balance of the account between them. In those circumstances it is difficult to see how a summary judgment can be of any advantage to either party where, as the 1996 Act and paragraph 31 of the Model Adjudication Procedure make clear, the account can be reopened at some stage; and has to be reopened in the insolvency of Dahl-Jensen.
 Part 24, rule 2 of the Civil Procedure Rules enables the court to give summary judgment on the whole of a claim, or on a particular issue, if it considers that the defendant has no real prospect of successfully defending the claim and there is no other reason why the case or issue should be disposed of at a trial. In circumstances such as the present, where there are latent claims and cross-claims between parties, one of which is in liquidation, it seems to me that there is a compelling reason to refuse summary judgment on a claim arising out of an adjudication which is, necessarily, provisional. All claims and cross-claims should be resolved in the liquidation, in which full account can be taken and a balance struck. That is what rule 4.90 of the Insolvency Rules 1986 requires."
" It seems to me that those matters ought to have been considered on the application for summary judgment. But the point was not taken before the judge and his attention was not, it seems, drawn to the provisions of the Insolvency Rules 1986. Nor was the point taken in the notice of appeal. Nor was it embraced by counsel for the appellant with any enthusiasm when it was drawn to his attention by this Court. In those circumstances - and in the circumstances that the effect of the summary judgment is substantially negated by the stay of execution which this court will impose - I do not think it right to set aside an order made by the judge in the exercise of his discretion. I too would dismiss this appeal."
"It is this: to what extent, if at all, does an adjudicator appointed under the Housing Grants (Construction and Regeneration) Act 1996 ("the Act") have the jurisdiction to take an account and identify a net balance due arising out of mutual dealings between the parties pursuant to Rule 4.90 of the Insolvency Rules 1986?"
(a) Was the NLSDA Sub-Contract between Subterra and TML novated in favour of Enterprise?
(b) What rights and liabilities were the subject of the Deed of Assignment of 15th June 2009 between TML and Utilities?
(c) Was the Deed a valid assignment?
(d) Can Utilities as assignees adjudicate the NLSDA claim against Enterprise?
(e) Does the Adjudicator have the necessary jurisdiction to undertake this adjudication?
"65. In my analysis, Utilities have not sought to refer to adjudication the dispute as to their right to an account and a balance due under Rule 4.90. Instead, they have purported to refer to adjudication TML's disputed claim against Enterprise under the novated NLSDA Sub-Contract. That is the only claim identified in the Adjudication Notice which is, of course, the document from which the Adjudicator derives his jurisdiction: see Griffin v. Midas Homes  78 Con LR 152. Moreover, one of the decisions sought by Utilities is to the effect that Enterprise cannot in the adjudication rely on their Lot 8 claim, which is entirely consistent with their stance that only the NLSDA dispute has been referred. However, for the reasons set out below, I am in no doubt that Utilities did not have the right to refer to adjudication, or seek to ringfence within that adjudication, the dispute under the NLSDA Sub-Contract, which is just one element of the Rule 4.90 mechanism.
66. First, I conclude that, as a matter of law, the claim for sums due under the NLSDA Sub-Contract has, in the unequivocal words of Lord Hoffmann in Stein v. Blake, "ceased to exist". Following the liquidation of TML and the assignment of the right under Rule 4.90, as he put it, "the only chose in action which continued to exist as an assignable item of property was the claim to a net balance". Thus the claim under the NLSDA Sub-Contract could not be and was not assigned to Utilities. Because it was no longer extant, it was incapable of assignment under the Law of Property Act 1925.
67. Miss Barwise argued that the claim under the NLSDA Sub-Contract did continue to exist because that was the way in which the balance could be ascertained under Rule 4.90. It seems to me that that suggestion was roundly rejected by Lord Hoffmann in Stein v. Blake at page 255F of the report, where he said in terms that such a claim was "merely part of the process of retrospective calculation" and repeated that the only claim which could now exist was the claim to the net balance.
68. Accordingly, I find that the only chose in action which TML's liquidators could assign, and did assign, was the claim to a net balance which arose out of the mutual dealings on four separate Sub-Contracts, at least one of which was not even a construction contract. That claim could not be referred to adjudication for the reasons noted at paragraphs 61-64 above.
69. Secondly, in the absence of any agreement between the parties, it would not be in accordance with the Insolvency Rules for the calculation of the net balance under Rule 4.90 to be performed in what might be described as a piecemeal or hobbled fashion. Even if the original claim under the NLSDA Sub-Contract somehow continued to exist, it was only as one part of the mechanism for the arriving at a net balance arising from the mutual dealings. Absent agreement between the parties, there is nothing in Rule 4.90 which would justify subjecting this mechanism to the piecemeal, element-by-element approach encompassed in multiple adjudications, particularly in circumstances where, such as here, not all the relevant parties could be joined in to the adjudication in any event. I consider that that conclusion, to the effect that Rule 4.90 envisaged a single and final ascertainment process, is consistent with the clear words of the Rule; consistent with Lord Hoffmann's reference to "a single account" in Stein v. Blake; and consistent both with the earlier decision of the Court of Appeal in MS Fashions v. BCCI  1 Ch 425 and the subsequent decision of the House of Lords in Secretary of State for Trade and Industry v. Frid  2 AC 506. In none of those authorities is a piecemeal, slice-by-slice approach suggested as being in any way appropriate for the taking of the account under Rule 4.90.
70. Thirdly, there is what I perceive to be a fundamental clash between the certainty and finality envisaged by the full Rule 4.90 process and, to use the vernacular, the temporary, quick-fix solution offered by construction adjudication under the Act. How can a decision that, if challenged, is of a temporary nature only, and would relate just to an element of the chose in action, have any role in or relevance to the taking of a final account under the Insolvency Rules?
71. This fundamental difference of approach was highlighted by the Court of Appeal in Bouygues (UK) Limited v. Dahl-Jensen (UK) Limited  BLR 522, the only reported case of which I am aware which considered adjudication in the context of the Insolvency Rules. In that case Dahl-Jensen were in liquidation and thus were not, as a matter of law, entitled to summary judgment in respect of an amount found due by the adjudicator. Chadwick LJ referred to Stein v. Blake and he said this:
"34. Lord Hoffman pointed out, at page 252 in Stein v Blake that the bankruptcy set-off requires an account to be taken of liabilities which at the time of the bankruptcy may be due but not yet payable, or which may be unascertained in amount or subject to contingency. Nevertheless, the insolvency code requires that the account shall be deemed to have been taken, and the sums due from one party shall be set off against the other, as at the date of insolvency order. Lord Hoffman pointed out also that it was an incident of the rule that claims and cross-claims merge and are extinguished; so that, as between the insolvent and the other party, there is only a single claim - represented by the balance of the account between them. In those circumstances it is difficult to see how a summary judgment can be of any advantage to either party where, as the 1996 Act and paragraph 31 of the Model Adjudication Procedure make clear, the account can be reopened at some stage; and has to be reopened in the insolvency of Dahl-Jensen.
35. Part 24, rule 2 of the Civil Procedure Rules enables the court to give summary judgment on the whole of a claim, or on a particular issue, if it considers that the defendant has no real prospect of successfully defending the claim and there is no other reason why the case or issue should be disposed of at a trial. In circumstances such as the present, where there are latent claims and cross-claims between parties, one of which is in liquidation, it seems to me that there is a compelling reason to refuse summary judgment on a claim arising out of an adjudication which is, necessarily, provisional. All claims and cross-claims should be resolved in the liquidation, in which full account can be taken and a balance struck. That is what rule 4.90 of the Insolvency Rules 1986 requires."
72. In my judgment Bouygues highlights the fundamental discrepancy between the pursuit of the only dispute that can now arise between the parties, namely, in respect of the balance of the account between them to be identified as part of the final and certain process under Rule 4.90, and the purported reference to adjudication of a dispute in respect of one element only of that balance, pursuant to a process which can, in any event, be opened up as of right thereafter. This is a third reason why, in my judgment, Utilities have not sought to and cannot adjudicate their claim to the balance of the account arising out of the mutual dealings between the parties.
73. Miss Barwise's only answer to Bouygues was to say that it was of no application because Utilities were solvent and not in liquidation. But, so it seems to me, that does not get round the difficulty that the only claim that Utilities can pursue as assignees is the claim under Rule 4.90 that was previously available to TML's liquidators. Therefore the incompatibility of adjudication in this context is, in my view, an insurmountable jurisdictional hurdle to Utilities, just as it would have been to TML's liquidators."
"So far as the High Court is concerned, puisne judges are not technically bound by decisions of their peers, but they should generally follow a decision of a court of co-ordinate jurisdiction unless there is a powerful reason for not doing so."
In this case, not only is there no such powerful reason for me to disagree with those passages from Enterprise that I have reproduced in , but on the contrary there is every reason to agree with the analysis in that case. Mr Sears sought to distinguish the authority as it involved multiple contracts, and an assignment. Those are doubtless features of the facts in that case, but they are not features that mean the analysis which I adopt is or should be different if there were only one contract, and/or no assignment. The analysis is of the nature of the character and existence of both claim and cross claim, or to use the language of both the 1986 Rules and 2016 Rules, the "mutual dealings and the sums due from" one party to the other following the taking of the account. Mutual dealings and sums due between the two parties can arise under one, or more than one, contract.
"79. It follows from my analysis in Section 7 above that the adjudicator does not have the necessary jurisdiction to deal with this dispute. The only claim now extant between the parties is the claim by Utilities as assignees for the net balance under Rule 4.90. That is not a claim which could be referred to adjudication and it is not the claim that has been purportedly referred to this adjudicator. The claim which has been purportedly referred to the adjudicator no longer exists. Further, for the reasons noted above, Rule 4.90 does not contemplate that the account process would be taken in a piecemeal or slice-by-slice fashion, by reference to potentially different tribunals, including adjudicators who could, at most, make a decision that is only of temporary effect."
"The issue in that case [Enterprise Managed Services v Tony McFadden Utilities Ltd  EWHC 3222 (TCC)] was whether or not adjudication was an appropriate process in the case of an assigned debt involving several contracts. We are only concerned here with one contract and there is no assignment."
"An issue has also been raised as to whether or not adjudication is available. It seems to me that in the particular circumstances of this case, under the terms of the contract, adjudication is an available process which it is open to the liquidators to pursue. Whether it makes any sense to invoke adjudication must be a matter of commercial judgment, because the adjudication will not, as I have said, without more, result in the ascertainment of the net balance. The adjudication will produce at most a temporary obligation, more in the nature of an interim payment. However the contractual right to an adjudication is there. Whether or not the court would enforce any order against the company seems inconceivable, as this would defeat the requirement of pari passu distribution, and it may therefore be that were the school to make an adjudication application, that might be met by an application for a stay by the liquidators on conventional insolvency grounds"
1. It ignores the analysis of Coulson J (as he then was) in  of Enterprise when he stated that "Bouygues highlights the fundamental discrepancy between the pursuit of the only dispute that can now arise between the parties, namely, in respect of the balance of the account between them to be identified as part of the final and certain process under Rule 4.90, and the purported reference to adjudication of a dispute in respect of one element only of that balance, pursuant to a process which can, in any event, be opened up as of right thereafter." This was the "third reason" relied upon by the judge in Enterprise, and applies regardless of how many contracts there are between the parties.
2. The presence of an assignment in the Enterprise case makes no difference to the analysis of the judge in that case. No assignee can be in any better position than the assignor. This is trite law. The emphasised passage in Enterprise in  of this judgment could equally state, with changes highlighted in the usual way "The only claim now extant between the parties is the claim by
Utilities as assigneesTML in liquidation for the net balance under Rule 4.90. That is not a claim which could be referred to adjudication and it is not the claim that has been purportedly referred to this adjudicator. The claim which has been purportedly referred to the adjudicator no longer exists." The reason that the claim "no longer exists" is because of the liquidation, not because of the assignment.
3. The statement that adjudication is an available process, but the courts will not enforce it, ignores two important elements. Firstly, it ignores the dicta by Edwards-Stuart J at  in Twintec v Volker Fitzpatrick where he stated "I am unable to see how it would be either just or convenient to permit an adjudication to continue in circumstances where the decision of the adjudicator will be incapable of enforcement." Secondly, it ignores the finding of Coulson J (as he then was) at  of Enterprise where he stated that "the adjudicator does not have the necessary jurisdiction to deal with this dispute." Jurisdiction is an absolute – a tribunal either has it, or it does not. There are not different gradations of jurisdiction. There is no "half-way house", where an adjudicator has jurisdiction to determine a dispute, but the courts will not enforce the decision. It is, by now, trite law that a decision of an adjudicator who has jurisdiction to determine the dispute referred to him or her will be enforced by the court, absent substantive breaches of natural justice that make the adjudication proceedings materially unfair.
4. The conclusion of the deputy judge also ignores the express finding at  in Enterprise that "the only chose in action" was "the claim to a net balance which arose out of the mutual dealings". If there is but one chose in action in existence, there can be no "temporary obligation, more in the nature of an interim payment" owed to a party in liquidation. No such obligation can exist, temporary or otherwise. The obligation can only exist and be in respect of that single chose in action, not something else.
5. The conclusion of the deputy judge also ignores the summary of Enterprise in the leading textbook in this area, namely Coulson on Construction Adjudication (2nd ed. 2011 Oxford University Press) at 13.24. The text states "in Enterprise v Tony McFadden Utilities the adjudicator's decision was not enforced for a variety of jurisdictional reasons." It also states at 17.07 that "if the judgment creditor is in liquidation, then that is a ground either to refuse summary judgment, or to stay execution."
6. It also ignores Hart v Fidler  EWHC 2857 (TCC). In that case, the liquidation of the contractor was one of the reasons why the court refused to enforce the adjudicator's decision. At 17-08 in Coulson on Construction Adjudication, the text states that this was "one of three separate reasons" to refuse enforcement, and that in that case the court decided that "to enter judgment in such circumstances might amount to an inaccurate assertion of the parties' substantive rights in the liquidation, because such a judgment would be based upon a decision which was only temporarily binding".
"All "close out" transactions in cases such as Lehmann and Carillion would be invalid since all close outs resulted in the exercise of contractual rights following liquidation of one party. According to the Claimant all such contractual rights (and procedures) were extinguished and all that the Liquidators could do was commence legal proceedings to decide the net balance under r.14.25."
The reference to "Lehman" refers to the collapse of the Lehman Group of companies in 2008, an event within the financial world of cataclysmic proportions that threatened the global banking system. "Carillion" refers to the sudden liquidation of a major FTSE 100 company. They are not directly comparable to one another, in that the former was an administration and the latter the appointment of PwC as Special Managers, to act on behalf of the Official Receiver. The involvement of the Official Receiver is not entirely usual, and certainly not for such a major company. However, Carillion was therefore a liquidation.
"The winding up does not either create new substantive rights in the creditors or destroy the old ones. Their debts, if they are owing, remain debts throughout. They are discharged by the winding up only to the extent that they are paid out of dividends. But when the process of distribution is complete, there are no further assets against which they can be enforced. There is no equivalent of the discharge of a personal bankrupt which extinguishes his debts."
"The purpose of the administrations of these companies has been the realisation of their respective assets to best advantage, rather than the preservation of the companies as going concerns. Contrary to many people's expectations when LBIE went into administration, it now appears that it is able to repay all its external creditors in full."
"195. This makes it unnecessary to determine the nature of insolvency proceedings as applied to debts in general. There are two possibilities. The first is that the statutory scheme for corporate insolvency works by discharging the creditor's legal right and replacing it by a right to receive a distribution from the insolvent estate in accordance with the Rules. In that case, there is no continuing contractual obligation which can be said to remain partially unsatisfied once the creditor has received all that the Insolvency Rules entitle him to. The second possibility is that insolvency proceedings merely operate as an administrative procedure for distributing the debtor's assets pari passu among its creditors when there is a deficiency, without abrogating or altering the creditor's pre-existing legal rights save in so far as the legislative scheme so provides. As David Richards J put it (para 110) [of the first instance judgment at  EWHC 704 (Ch) 1], the creditor's contractual rights are "compromised by the insolvency regime only for the purpose of achieving justice among creditors through a pari passu distribution." In that case, the creditor's claims survive and remain enforceable against any surplus assets, unless the legislation otherwise provides. On the view which I take, even if this latter analysis is correct, it will not avail the LBIE creditors, since in the case of foreign currency debts the legislation does otherwise provide.
196. These fundamental questions about the nature of insolvency proceedings have arisen in the case law in a wide variety of legal contexts. It may well be necessary to answer them at some point in the future. In the meantime, I merely express the provisional view that there is much to be said for the way in which David Richards J and the majority of the Court of Appeal answered them."
"57. The second issue is whether, even on the assumption that there was no contractual entitlement under the terms of the contracts themselves to refuse payment of interim certificates, the judge should nonetheless have restrained presentation of the petition based on the interim certificates in accordance with what Miss Lee submitted was the established practice of the TCC not to enforce interim payment obligations in favour of insolvent contractors. She submitted that the judge, in permitting the respondent to present a petition, acted inconsistently with the established practice of the TCC, which recognised the provisional nature of interim payment obligations, and that enforcement should not be ordered where there was no prospect of recovering payment if those payment obligations were subsequently varied. In this context she referred to: Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd at pages 527-529, paragraphs 29 to 36; Hart v Fidler  EWHC 2857 (TCC) at paragraphs 69-73; and Galliford Try Building Ltd v Estura Ltd  EWHC 412 (TCC) at paragraph 22.
58. Those cases indeed establish (as, for example, the above citation from paragraphs 29 to 36 of the judgment of Chadwick LJ in Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd demonstrates) that, in appropriate circumstances, including where the contractor is insolvent, the provisional nature of an employer's obligation to make payment of an interim payment will lead to the court refusing summary judgment on an adjudication in favour of the contractor.
59. But, in my judgment, it is clear from the facts of, and discussion in, those cases that it is not an absolute rule that summary judgment on an adjudication will be refused simply because the employer is able to show by evidence that the contractor is insolvent. What is clear is that, in deciding whether to refuse summary judgment in such cases, the court looks at all the circumstances including whether the employer's counterclaim has sufficient merit to justify such a course and/or has sufficient mutuality to lead to compulsory set off in an insolvency.
60. Thus, in my judgment, in the absence of a contractual right entitling the employer to refuse payment under interim certificates in the event of the insolvency of the contractor (such as I have held existed under the contracts in the present case), there is no absolute rule that the TCC will necessarily decline to give summary judgment or restrain presentation of a winding up petition based on an adjudication, merely because the contractor is insolvent. Whether or not the court will adopt such a course will be dependent on the facts of the particular case. Accordingly, I would dismiss the appeal on this ground."
"Clause 8.5 of the Conditions dealt with the insolvency of the contractor. The relevant provisions will be set out in full below. It is the appellant's contention that the effect of clauses 8.1.3, 8.5.3, 184.108.40.206 and 8.7.3 was that, as from the date that the contractor passed a resolution for voluntary winding-up without a declaration of solvency, the employer was no longer under any obligation to pay any sum that had already become due and payable under any interim payment certificate".
"A party to a construction contract has the right to refer a dispute arising under the contract for adjudication under a procedure complying with this section".
Similar wording appears in paragraph 1(1) of the Scheme thus:
"Any party to a construction contract (the 'referring party') may give written notice (the 'notice of adjudication') of his intention to refer any dispute under the contract, to adjudication".
"Upon insolvency, liability to make an interim payment therefore becomes a matter which relates not to cash flow but to the substantive rights of the employer on the one hand and the contractor's secured or unsecured creditors on the other.
12. The Inner House ( SLT 95) in holding that clause 220.127.116.11 was in conflict with the terms of the 1996 Act, said (at p. 104) that if a contractor became insolvent, Parliament "has provided quite clearly that…the losses should be borne by the…employers under the contract." My Lords, I can find no trace of such an intention. It seems to me most unlikely that Parliament intended that provisions intended to improve the efficiency of the construction industry should determine priorities between the employer and an insolvent contractor's creditors. The Inner House added that not only would there be bankers with an interest in the [insolvent] contractor's cash flow but "there will be subcontractors awaiting payment". This seems to be based upon some misapprehension, because in most cases the position of subcontractors would be in no way improved by construing the Act as disabling an employer from retaining the money which provides him with security for his cross-claim. If he is made to pay, the money will go to the bank and neither the contractor nor the subcontractors will get anything.
13. A provision such as clause 18.104.22.168, which gives the employer a limited right to retain funds by way of security for his cross-claims, seems to me a reasonable compromise between discouraging employers from retaining interim payments against the possibility that a contractor who is performing the contract might become insolvent at some future date (which may well be self-fulfilling) and allowing the interim payment system to be used for a purpose for which it was never intended, namely to improve the position of an insolvent contractor's secured or unsecured creditors against the employer. Mr Howie said that to allow the employer any security in the form of an unpaid instalment payment would be to allow him to profit from his own wrong. But the security arises, not from the terms of the contract but from the law of bankruptcy set-off. As Chadwick LJ pointed out in Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd  BLR 522, any creditor who owes a debt to an insolvent company, no matter how long overdue, may set off that debt in full against his own claim in the liquidation."
"This is known as compensation, or the balancing of accounts, in bankruptcy. Its purpose is to prevent the hardship of a debtor who is also a creditor being forced to pay in full, when he will come in only as a creditor for a dividend for his debt as a result of ranking pari passu with the ordinary creditors. The liquidation of a company is treated as the equivalent for this purpose as bankruptcy: Highland Engineering Ltd v Thomson, 1972 SC 87, 91, per Lord Fraser. The parties to a construction contract are entitled to the benefit of the doctrine, just like anyone else. The same result is achieved under English law by rule 4.90 of the Insolvency Rules 1986: see Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd  BLR 522, paras 30-32 per Chadwick LJ, although the point was not taken in that case.
33. The doctrine is available only in the event of liquidation or bankruptcy. As Bell puts it in his Commentaries [Commentaries on the Law of Scotland] vol ii, 122, the imminent necessity for the payment of the liquid debt is taken away by the bankruptcy. But there are other situations closely related to insolvency, listed in clause 27.3.1, where the employer may have good reasons for wishing to determine the contractor's employment. There may also be good reasons in those situations for thinking that the contractor, although not yet actually insolvent, is on the verge of insolvency. JCT 1998 seeks, in the employer's interest, to deal with this situation in two ways."
"36. Part II of the 1996 Act contains a package of measures relating to construction contracts which followed upon the recommendations of Sir Michael Latham's Report Constructing the Team (HMSO 1994). His report was jointly funded by the construction industry and the Department of the Environment. In May 1995 the Department of the Environment issued a consultation paper entitled Fair Construction Contracts. It was concerned with the extent to which improved construction contracts could and should be underpinned in law: para 2. It was noted that the Latham Report had confirmed what was widely believed, that the existing arrangements militated against co-operation and teamwork, and that the reform of current contractual relations was central to the competitiveness of the industry in both the short and long term: para 4, 5. Attention was drawn to the list of principles that Constructing the Team had identified in para 5.18 as those which the most effective form of contract in modern conditions should include. Among these principles, which were set out in Annex A to the consultation paper, was the following:
"9. Clearly setting out the period within which interim payments must be made to all participants in the process, failing which they will have an automatic right to compensation, involving payment of interest at a sufficiently heavy rate to deter slow payment."
None of the principles listed here deals with the situation referred to in the proviso to clause 22.214.171.124.
37. In para 23 of the consultation paper it was noted that the proposals in Constructing the Team had identified the following as essential terms in all construction contracts: dispute resolution; right of set off; prompt payment; protection against insolvency. In para 12 it was noted that legislation in this area could significantly restrict to some extent the freedom of parties to contract on any terms they chose. The first point on which the government wished to have views was whether the proposals for legislation set out in Constructing the Team and elaborated in the consultation paper were likely to improve contractual relations sufficiently to justify this regulatory intervention. So it is important to see what the consultation paper does, and does not, address.
38. The section of the consultation paper which deals with prompt payment refers to payments that fall to be made during the course of the project, and to the need for a clearly defined period within which interim payments must be made to all participants in the process: paras 34, 35. In para 38 it was suggested that the practice of withholding payment until payment had been received from a party higher up the chain ought not to be recognised in any statutory scheme for the approval of a standard from of building contract. The section on the right of set off refers to the widely applied practice of setting off unliquidated cross claims against sums due on interim certificates: see Modern Engineering (Bristol) Ltd v Gilbert-Ash (Northern) Ltd  AC 689. Constructing the Team recommended that this right should be constrained: para 8.9. The consultation paper proposed various steps that might be taken to deal with this problem: paras 31, 32. But set-off in the circumstances referred to in clause 126.96.36.199 is not discussed. There is no indication that there was thought to be any need to constrain, or to restrict, the employer's right of set off in the event of the determination of the contractor's employment under the contract.
39. In the section of the consultation paper on protection against insolvency it was noted that a complication in creating trust among the members of the construction team which had attracted particular attention was the fear that during the course of the contract one of the parties, including the client, might become insolvent: para 39. In para 40 the consultation paper stated that it was not possible to give absolute protection against this risk which was a normal commercial one faced by all those doing business. It was suggested that the risk could be minimised, in the case of the client, by the use of trust funds. But there is no indication here that it was the intention to reduce the protection that it was already the practice for the employer to seek to obtain against the risk of the contractor's insolvency in the event of the determination of his employment under the contract.
40. That then is the background to Part II of the 1996 Act. In general its provisions follow the agenda that was indicated in the consultation paper. Legislation on trust funds to increase protection against the client's insolvency was omitted, as was the provision of a statutory right to interest for late payment. But provision was made for entitlement to stage payments (section 109), for the inclusion in every construction contract of an adequate mechanism for determining what payments become due under it and the final date for payment in relation to any sum which becomes due (section 110), for notice to be given of an intention to withhold payment (section 111), for a right to suspend performance for non-payment (section 112) and for the prohibition of provisions making payment conditional on payment received from a third person (section 113). Leaving aside the small print, there is nothing in this part of the Act that would surprise anyone who had engaged in the consultation process that preceded it. Nor is there anything to suggest that regulatory intervention had been resorted to on matters that had not been put out for consultation with the construction industry".
"Once a contractor becomes insolvent, there is at any rate in English law, and as I understand it in Scots law, an automatic set off arrangement (see rule 4.90 of the Insolvency Rule 1986 as discussed in Stein v Blake  AC 243 and, in the context of a case such as this, in Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd  BLR 522 paras 29-34). Accordingly, the importance given by the legislature to cash flow for contractors and subcontractors in sections 109 to 111 effectively gives way to the importance of rights of creditors once there is an insolvency."
A company in liquidation cannot refer a dispute to adjudication when that dispute includes (whether in whole or in part) determination of any claim for further sums said to be due to the referring party from the responding party.