Adjudication and Insolvency

In the current economic climate, parties are increasingly looking to adjudicate their disputes. But what about when one of the parties concerned is insolvent. Can claims under Rule 4.90 of the Insolvency Rules 1986 be adjudicated? This was the question which came before Mr Justice Coulson in the case of Enterprise Managed Services Ltd v Tony McFadden Utilities Ltd [2009] EWHC 3222 (TCC).

The Facts

On 5 May 1998 Thames Water Utilities Limited engaged Thames Water Services Limited, trading as Subterra, to carry out the repair and maintenance of mains, service pipes, and other fittings (the "Main Contract"). By a subcontract dated 13 November 2002 Subterra engaged Terry McFadden Limited ("TML") to carry you this work in the North London area (the "Subcontract"). The Subcontract was a Construction Contract within the meaning of the Housing Grants (Construction & Regeneration) Act 1996 (the "Act").

On 31 August 2003 Enterprise Managed Services Limited ("Enterprise") agreed to buy the business of, and the assets owned by, Subterra. An Asset Purchase Agreement and Novation Agreement were duly entered into. The Deed of Novation listed only the Main Contract.

Enterprise proceeded to make payments to TML. On 26 March 2004 TML submitted their final account which was criticised by Enterprise and on 21 April 2004 the Subcontract was terminated. During 2005 and 2006 three other subcontracts were entered into between TML and Subterra (one of which was not a Construction Contract under the Act).

In May 2006 TML became insolvent and, following this, the administrators submitted a final account for the Subcontract alleging a balance of £2.5 million. TML then went into liquidation. Claim documents were then served in relation to the other contracts between the parties. Enterprise also submitted counterclaims and later confirmed it intended to prove in the liquidation.

On 15 June 2009 the liquidators for TML entered into a deed with Tony McFadden Utilities Limited ("Utilities") which purported to assign the balance arising out of the dealings between TML and Enterprise. Utilities gave notice of this assignment to Enterprise in September 2009 and enclosed within that a notice of adjudication regarding the Subcontract.

On 27 October 2009 Enterprise issued CPR Part 8 proceedings seeking 12 declarations including one that the adjudicator had no jurisdiction and therefore the adjudication should be aborted.

The Issues:

There were a number of issues referred to the...