When arbitration and liquidation collide—Philpott v Lycee Francais Charles de Gaulle School

When arbitration and liquidation collide—Philpott v Lycee Francais Charles de Gaulle School

Does the Arbitration Act 1996 trump the taking of an account under the Insolvency Rules? Lydia Pemberton of St Philips Chambers comments on a ruling of the High Court that highlights the importance of arbitration clauses and agreements in commercial disputes.

Original news

Philpott and another (as joint liquidators of WGL Realisations 2010 Ltd) v Lycee Francais Charles de Gaulle School [2015] EWHC 1065 (Ch), [2015] All ER (D) 175 (Apr)

A company in voluntary creditors’ liquidation was engaged in a construction dispute with a school. The school put in a proof of debt, which the company’s liquidators had yet to approve. The school contended that an arbitration clause in the construction contract was binding and continued to apply despite the company being in liquidation. The liquidators of the company applied for directions, contending that the court had power, under the Insolvency Rules 1986, SI 1986/1925, r 4.90 in connection with the proof of debt process, to give directions as to the taking of an account of the balance due between the company and the school. The Chancery Division ruled, among other things, that the arbitration clause trumped the taking of an account under the court's directions as envisaged by the Insolvency Rules. The arbitration agreement had not become inoperative following liquidation of the company.

What was the background to the application?

WGL Realisations 2010 (formerly Welconstruct Limited) went into creditors’ voluntary liquidation in 2010. In July 2008 WGL had entered into a JCT Intermediate Building Contract (the contract) with the respondent (the Lycee Francais Charles De Gaulle School (the school)).

It was common ground that the parties had ‘mutual dealings’ with each other prior to the liquidation (rule 4.90 Insolvency Rules 1986), resulting in a claim by WGL for approximately £615,000 and from the school for approximately £270,000. The school had submitted a proof of debt in around the £270,000 mark, which, at the date of judgment, was yet to be accepted or rejected by the joint liquidators.

Rule 4.90 is silent as to the mechanism by which an account can be taken. The joint liquidators argued that Part 9 of the Insolvency Rules allowed them to seek directions as to the taking of an account of the balance due between the parties.

However, the contract contained an arbitration clause and an adjudication clause. The school

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