The Court of Session has reiterated that balancing of accounts in bankruptcy may be relied upon by a defender in enforcement proceedings to successfully resist enforcement of an adjudicator's award. See Richard Heis & others as joint administrators of Connaught Partnerships Ltd (in administration) v. Perth & Kinross Council.
The Court upheld a traditional challenge from the defender that the adjudicator had failed to exhaust her remit. It considered that the question of the balancing of accounts in bankruptcy had been raised by the respondent in the adjudication and should have been addressed by the adjudicator but had not been. However the Court's approach to the contractor's insolvency is of more general interest.
The Scottish Courts have already held that balancing of accounts can be successfully relied upon to resist enforcement. See Integrated Building Services Engineering Consultants Limited (trading as Operon) –v- Phil UK Limited 2010 BLR 622. However Operon was a case of 'supervening' insolvency (where the insolvency occurred after the adjudication giving rise to the award but before enforcement).
Here, unlike in Operon, the contractor was insolvent at the time of the adjudication and so this was not a 'supervening' insolvency. The pursuer argued that in such a case a defender has to plead balancing of accounts during the adjudication (which it maintained the defender had not) in order to be able to rely upon it in any enforcement proceedings that follow. The defender urged the Court to adopt the same approach as it did in Operon, which the Court ultimately did. It noted that balancing of accounts is an equitable doctrine "designed to prevent injustice"; and that (within an adjudication context) it can be operated to "prevent what was intended to be a provisional solution from becoming, for all practical purposes, the final outcome. In such circumstances, it is not clear to me that any failure to take the point before the adjudicator prevents it from being raised at the enforcement stage."
Parties who adjudicate North and South of the border should note that in Scotland balancing of accounts in bankruptcy must still be plead (whether that is before the adjudicator or, as in this case, before the Court at enforcement stage). However this recent case has indicated that it may properly be plead at enforcement stage irrespective of whether it was available to be plead and wasn't during the adjudication itself.