In 2002, Tony McFadden Limited (“TML”) was engaged under a subcontract known as the NLSDA Subcontract to carry out repair and maintenance work to mains, service pipes and other fittings in North London. In early 2004, TML sent to Enterprise its final account for the NLSDA subcontract. Subsequently, Enterprise wrote to TML stating that as Enterprise’s main contract had been terminated, the NLSDA subcontract was also being terminated. In 2005 and 2006 Enterprise engaged TML on three other subcontracts.

 

In May 2006, TML went into administration. In late 2007, TML’s administrators submitted a further NLSDA final account to Enterprise, which alleged an outstanding balance of £2,500,000. TML subsequently went into liquidation. Claim documents were then served in relation to the other contracts between the parties. Enterprise also submitted counterclaims.

In June 2009, TML’s liquidators purported to assign the “net [Enterprise] balance” to Tony McFadden Utilities Limited (“Utilities”). Utilities assigned the right to any net balance of all mutual dealings between Enterprise and TML, arising out of rule 4.90 of the Insolvency Rules 1986 (“Rule 4.90”), had been assigned. Utilities gave Enterprise notice of the assignment, and enclosed a notice of adjudication which referred the final account for the NLSDA subcontract. Enterprise commenced CPR Part 8 proceedings seeking 12 declarations.

 

On the facts the Judge decided that the NLSDA subcontract had been validly novated to Enterprise. However whilst the right to any net balance under Rule 4.90 had been assigned, and so too had the basic right to adjudicate, the NLSDA subcontract itself, or any right to make a claim for breach of it, or any of the other subcontracts, had not been assigned. The Judge then had to decide:

1           Could Utilities, as assignees, adjudicate the right to a net balance under Rule 4.90?

2           Did the adjudicator have jurisdiction to act, primarily in light of:

2.1          What dispute had been referred?

2.2          Had that dispute crystallised prior to the commencement of the adjudication?

The Judge held that:

1           The right to adjudicate for any net balance had not been validly assigned, for three reasons:

1.1          There was more than one contract between the parties and accordingly, without the consent of the parties, the adjudicator could not undertake the necessary task to work out the net balance of all mutual dealings;

1.2          If, as Enterprise claimed, it was owed a net balance, then it would be necessary to join TML’s liquidator’s into the action, making it tripartite, which can not happen in the adjudication process; and

1.3          The net balance under Rule 4.90 is intended to be a single process resulting in a final and binding decision, whilst adjudication would create a contract by contract decision that would only be temporarily binding.

2           The adjudicator did not have jurisdiction to act, as:

2.1          The dispute referred by Utilities to adjudication was the value of the disputed final account under the NLSDA subcontract, and this no longer existed. The only dispute still in existence was the net balance under Rule 4.90.

2.2          The dispute had not crystallised before the notice of adjudication was served. Once the assignment was complete, Utilities should have notified Enterprise of the assignment and of the dispute before serving the notice of adjudication. Instead they served notice of the assignment and dispute, and the notice of adjudication at the same time. A period of time had to elapse between the events. Utilities had argued that they were merely standing in the shoes of TML’s dispute which Enterprise had known about for over a year. However the Judge stated that if Utilities and Enterprise were to be parties to the adjudication, then Utilities could not rely on a third party’s earlier notification.

 

Accordingly the adjudication was to be aborted.

 

Finally, the Judge criticised the way in which the adjudicator had conducted the adjudication: