Enterprise Managed Services Ltd v McFadden Utilities Ltd

An assignee of rights arising on insolvency under rule 4.90 of the Insolvency Rules 1986 receives the right to have a single account taken and to recover the resulting net balance. The underlying contractual claims merge into that balance and cannot be pursued separately. An adjudicator cannot determine the account piecemeal across several contracts, particularly where all relevant parties cannot be joined and the result would be only temporarily binding. A dispute must also crystallise between the actual parties to the adjudication before referral. Where a claim is too large and complex to be dealt with fairly within the statutory timetable, the adjudicator should resign.

The claimant sought declarations concerning an adjudication commenced by the defendant, an assignee of claims formerly held by a company in liquidation. The disputes arose from four sub-contracts and involved mutual claims and cross-claims falling within rule 4.90 of the Insolvency Rules 1986.

The court had to determine whether the relevant construction contract had been novated, what rights had been assigned, whether the assignee could refer an individual contractual claim to adjudication, whether the dispute had crystallised, and whether the adjudicator had jurisdiction.

1. The NLSDA Sub-Contract was novated from Subterra to Enterprise by construction of the Asset Purchase Agreement. In any event, the parties’ conduct provided compelling evidence of novation.

2. The Deed of Assignment assigned the right under rule 4.90 of the Insolvency Rules 1986 to an account being taken and any net balance being recovered. It did not assign the individual contractual claims. The assignment was not limited to the NLSDA and Lot 8 contracts, and it did not fail because a negative balance might result.

3. The prohibition on assignment in the Lot 8 Sub-Contract prevented assignment of ordinary contractual claims, but did not prevent assignment of the specific statutory insolvency right to an account arising from mutual dealings.

4. Following Stein v Blake [1996] 1 AC 243, the original claims and cross-claims ceased to exist as separate assignable choses in action after liquidation. Only the claim to the net balance remained. That account had to be taken as a single, final process. The assignee could not isolate the NLSDA claim and refer it to adjudication.

5. Adjudication was also inappropriate because the account involved four sub-contracts, at least one of which was not a construction contract; the liquidators might need to be joined; and adjudication produces a temporarily binding result rather than the final account required by rule 4.90. The reasoning in Bouygues (UK) Limited v Dahl-Jensen (UK) Limited [2000] BLR 522 supported that conclusion.

6. Separately, even assuming the NLSDA claim could be adjudicated, no dispute had crystallised. The assignee gave notice of the assignment and the adjudication at the same time. The responding party had to have at least an opportunity to consider the claim made against it by the actual claiming party.

7. The adjudication was also unsuitable in practical terms. A very large and paper-heavy final account dispute could not fairly be determined within the statutory period. The adjudicator should have considered jurisdiction and manageability at the outset and, if unable to proceed fairly and within time, resigned.

8. The court declared that the adjudicator lacked jurisdiction and that the adjudication must be aborted. The parties were invited to agree the precise form of any further declarations.