HHJ Purle had to consider an application for directions by liquidators of WGL, a company which was involved in a construction project for the School under a JCT Intermediate Building Contract (with Contractor’s Design) 2005 as amended. A dispute had arisen as to who owed money to whom, and the court was asked to decide the correct forum for resolving that dispute. According to the liquidators, around £615k was due to WGL, and according to the School, £270k was due to them.

The School had formally put in a proof of debt for its £270k,   which the liquidators had yet to accept or reject. There was a final certificate, which was under challenge but which was said to be very much in the School’s favour. There was an arbitration clause in the contract and also provision for adjudication.

The School said that the arbitration clause was binding and continued to apply after an administration and liquidation. As this was a voluntary liquidation arbitration proceedings could be commenced, though they would be vulnerable to an application for a stay under Section 9 of the 1996 Arbitration Act.

The liquidators said that they could not decide whether to accept or reject the proof until the account referred to in Rule 4.90 of the Insolvency Rules had taken place. Put another way, the account referred to in Rule 4.90 cannot take place until the underlying dispute has been resolved. The issue before the Judge was how that dispute should be resolved. Rule 4.90 is silent as to what procedure is to be adopted for the purpose of the taking of the account.

The Judge noted that an adjudication, which was one of the suggested ways forward, was an “available process”. However,  he said that the decision as to whether or not to pursue the adjudication was one of “commercial judgment”. In particular the Judge had in mind the fact that it would only be, at most, of temporary effect, and so would not determine the account which is contemplated under Rule 4.90.

That left section 9 of the 1996 Arbitration Act. Sub-clause 4 notes that the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed.

The School submitted that whichever form of court proceedings the liquidators choose (outside of arbitration proceedings) to establish the balance of the account between the parties, those proceedings must be stayed.

The Judge noted that:

“I wish I could share the optimism that arbitration is as speedy as … experience suggests. It is certainly not cheap, as figures showing the estimated cost of arbitration proceedings demonstrate in this case. However, if the resolution of the underlying dispute is to be left to the taking of an account under directions given in the context of an appeal from the rejection of a proof of debt, that also could potentially be an expensive process, and I cannot believe it would be any speedier than arbitration.”

However, the real issue was whether, if the liquidators wished to adopt alternative and, they say, more economical procedures, the Arbitration Act 1996 “trumped” the taking of an account under  the court’s directions, as envisaged by the Insolvency Rules. The Judge ruled that it did. Parliament had chosen to strengthen the impact of arbitration clauses, and the facts of this case did not come within any of the limited statutory exceptions. Therefore, any legal proceedings which the liquidators wished to take in order to ascertain the net balance would come up against the obstacle of section 9, which, if invoked by the School, as it had indicated it would, would have to be enforced.