HEIS v PERTH & KINROSS COUNCIL
The adjudicator's award of a specified sum to the insolvent contractor should not be enforced summarily even if the issue of its insolvency was not raised before the adjudicator and was only raised on enforcement.
4 September, 2013
Scotland, Outer House, Court of Session
4th September 2013
The contractor was in administration. It was common ground that the local authority would only recover a very small proportion of the sum awarded to the contractor if (i) The award were to be enforced summarily and (ii) The local authority were to bring court or arbitration proceedings to resolve the dispute finally which resulted in the award being overturned,
Lord Malcolm in refusing to enforce the adjudicator’s award in favour of the insolvent contractor held that (i) The principle of the balancing of accounts in bankruptcy in Scotland can and should be applied due to the contractor’s insolvency (ii) It was tolerably clear that the issue of the contractor’s insolvency was properly placed before the adjudicator and (iii) Any failure to take the point before the adjudicator in any event did not prevent it from being raised at the enforcement stage.
The contractor’s reliance on the Inner House’s decision in The Construction Centre Group Ltd v Highland Council (2003) was misplaced because that case could be distinguished from the instant case in that (i) No issue of insolvency or the balancing of accounts in bankruptcy arose in that case and the point was expressly disavowed and (ii) The Inner House proceeded on the basis that the provisional nature of the adjudicator's decision could, if necessary, be unwound in due course when the true and ultimate indebtedness (if any) of the employer to the contractor was determined, which could not happen in the instant case due to the contractor’s insolvency.
A stay of execution of a judgment enforcing the decision in England or the balancing of accounts in bankruptcy in Scotland can operate in appropriate circumstances to prevent (i) The statutory scheme of adjudication from being undermined and (ii) What was intended to be a provisional solution from becoming, for all practical purposes, the final outcome. It was therefore not clear that any failure to take the point as to the contractor’s insolvency before the adjudicator prevents it from being raised at the enforcement stage. The equitable doctrine of the balancing of accounts in bankruptcy is designed to prevent injustice and is not prevented by the statutory adjudication regime or the Inner House’s decision in The Construction Centre Group Ltd v Highland Council from applying unless it is raised at the earliest opportunity.