J & A Construction (Scotland) Ltd v Windex Ltd (Scot, OH, CS - 30.10.2013)
The adjudicator's decision in the pursuer's favour should be enforced summarily despite the fact that its latest publicly available accounts showed an excess of liabilities over assets.
30 October, 2013
J & A CONSTRUCTION (SCOTLAND) LTD v WINDEX LTD
Scotland, Outer House, Court of Session
30th October 2013
The defender submitted in the Scottish courts in support of its opposition to the summary enforcement of the adjudicator’s decision that: (i) The pursuer had failed to provide details as to its current financial position but its last publicly available accounts show an excess of liabilities over assets (ii) An excess of liabilities over assets, taking into account contingent and prospective liabilities, is a basis for winding up a company under sections 122(1) and 123(2) of the Insolvency Act 1986 (iii) Unless the pursuer satisfied the court that it was able to pay its debts, the company should be treated as insolvent or verging on insolvency (iv) In that case it should be allowed to retain the sum awarded in the adjudication by operation of the equitable doctrine of the balancing of accounts in bankruptcy.
Lord Malcolm rejected the defender’s submissions and ordered summary enforcement of the decision. Whilst there may be cases, usually in the context of winding up or administration orders, where a balance sheet deficiency will create (something close to) a presumption of insolvency for the purpose of the application of sections 122 and 123 of the Insolvency Act: (i) The proceedings in the instant case were not winding up proceedings (ii) The issue for determination was whether an adjudicator's award should enforced by the court and (iii) If a balance sheet deficiency could in itself prevent or delay enforcement, this would have serious ramifications for the operation of the adjudication regime, which was intended to provide a speedy and reasonably certain, albeit provisional, resolution of construction contract disputes.
Even in the context of winding up petitions, a balance sheet deficiency did not necessarily mean that an order would be granted in the instant case because enforcement of payment now may come to seem unfair if in due course: (i) The present award proves to be erroneous or (ii) The defender makes out its currently pending claim in the Sheriff Court. However, unless the likelihood of unfairness can be clearly demonstrated now, for example by reference to undisputed insolvency, the policy underpinning adjudication pointed to immediate enforcement. The court could not now conclude that it was likely that the pursuer would be unable to reimburse the defender if an ultimate resolution of the dispute favoured it because the uncontested fact of a balance sheet deficiency did not prove that this would be the result.