Integrated Building Services Engineering Consultants Limited t/a Operon v Pihl UK Limited, July 2010 Outer House, Court of Session
The court looked at the relationship between a party’s obligation to give effect to an adjudicator’s decision in terms of the Housing Grants, Construction and Regeneration Act 1996 (“the 1996 Act”) if, after the date of issue of the adjudicator’s decision, the party in whose favour the decision is given becomes insolvent.
This case is of particular importance given the dearth of judicial authority in Scotland on the relationship between the 1996 Act and the insolvency of one of the parties in a construction contract and, of course, in light of the current economic climate in which construction company insolvencies have been higher than in any other industry sector in the UK with predictions that it will be the first major industry sector to fall back into recession following a brief recovery in the first half of this year.
An adjudicator found Pihl liable to pay certain sums to its sub-contractor, Operon. Shortly after sending a letter indicating its intention to raise enforcement proceedings against Pihl, Operon went into administration. Pihl invoked the principles of the balancing of accounts in bankruptcy on the basis that Operon was insolvent and would be wound up at the end of the administration, i.e. it was entitled to retain any sums due to Operon until its own claims against Operon were determined.
Operon pointed to the legislation requiring prompt payment of an adjudicator’s decision.
The court found in favour of Pihl confirming the law to be the same in both Scotland and England (see Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd and Rainford House Ltd v Cadogan Ltd), holding that: -
- Pihl were entitled to have their (counter) claims against Operon tested before the adjudicator’s decision was enforced; and
- The balancing of accounts in bankruptcy is an equitable principle which was not prohibited by the 1996 Act.
The court stressed that simple allegations of insolvency would not be sufficient for an argument such as that advanced by Pihl to succeed. Therefore, had the position not been so black and white in Pihl, the outcome may not have been such a happy one for the main contractor.
Contact:
Jilly Petrie
(Article created in October 2010 and may not have been updated at the time of reading).