Construction contract – Delays – Adjudication and arbitration – Defendant repaying sums to claimant pursuant to adjudicator’s decision – Subsequent decision concluding that defendant overpaying – Concurrent arbitration resulting in interim order for costs against defendant – Defendant deducting amount of overpayment from costs — Claimant seeking to enforce costs award in full – Whether defendant entitled to set off overpayment against costs – Claim dismissed
The claimant engaged the defendant to carry out construction works under a contract that incorporated adjudication provisions and an arbitration clause. By an adjudicator’s decision dated June 2007, the defendant was ordered to pay the claimant a substantial sum of liquidated damages in respect of delayed completion of the works, plus £126,192 by way of repayment of sums previously paid to it.
The defendant commenced an arbitration seeking a determination as to the time extension to which it was entitled and the sums that were due to it under the contract. In June 2008, an arbitration award was made in favour of the claimant. In March 2009, the arbitrator ordered the defendant to make an interim payment on account of the claimant’s costs in the sum of £85,000 pending a detailed assessment.
Meanwhile, the claimant had referred a further dispute to the adjudicator concerning an interim certificate issued by it’s architect. The certificate was in the negative sum of £356,971 and, deducting the £126,192 previously repaid, required the defendant to pay to the claimant a further sum of £230,779. The adjudicator found that the negative balance was less than £126,192, such that the defendant had overpaid and was entitled to £48,820; with the addition of VAT, the overpayment was £56,143. He did not order the claimant to repay any sum to the defendant since he considered it to be beyond his jurisdiction. Instead, the defendant deducted £56,143 from its interim costs payment to the claimant. The arbitrator ordered the defendant to pay the outstanding balance of the interim costs; the defendant did not comply and the claimant brought proceedings to recover that sum.
The defendant contended that it was entitled to set off the amount of its overpayment against the interim costs. Disputing that entitlement, the claimant contended that: (i) the adjudicator had not decided that the claimant owed that sum to the defendant; (ii) he had lacked jurisdiction so to decide; and (iii) his decision was trumped by the arbitrator’s award such that the former could not be set off against the latter.
Held: The claim was dismissed.
(1) Notwithstanding that the adjudicator had not required claimant to reimburse the overpayment, the defendant’s entitlement to that sum formed an important and express part of his decision, or, alternatively, was reasonably to be inferred as the logical and inevitable consequence of his valuation: Balfour Beatty Construction v Serco Ltd [2004] EWHC 3336 (TCC) and David McLean Housing Contractors Ltd v Swansea Housing Association Ltd [2002] BLR 125 applied.
(2) The adjudicator had jurisdiction to decide that point. As part of the valuation process, he was inevitably required to take into account the repayment already made by the defendant in deciding whether any sums were due to the claimant. He was addressing not only the value of the interim certificate but also the balance of the account between the parties. He was entitled to conclude that, as a result of his valuation of the interim certificate, the defendant had overpaid the claimant and was entitled to a sum in return on the balance of the account between them. The claimant had to accept the consequences of its own reference regarding valuation. Consequently, the adjudicator could have ordered the claimant to pay that sum to the defendant, notwithstanding that the adjudication notice issued by the claimant did not identify any claim by the defendant for overpayment: David McLean applied.
(3) Although a defendant could not generally seek to raise a counter-claim as a means of defeating a claim to enforce an adverse arbitral award, the defendant in the instant case asserted not merely the existence of a prima facie counter-claim, but a decision by an adjudicator that was binding on the claimant for the time being, to the effect that the claimant should pay the sum in question to the defendant: Margulies Bros Ltd v Dafnis Thomaides & Co (UK) Ltd (No2) [1958] 1 WLR 398 and Middlemiss & Gould v Hartlepool Corp [1973] 1 All ER 172 distinguished. Moreover, this was a simple mutual set-off of debts arising by reason of the adjudicator’s and the arbitrator’s awards, each of which was binding for the time being and could be enforced with the permission of the court. Neither award had greater status than the other. They therefore cancelled each other out provided that they could be regarded as giving rise to an equitable set-off. An equitable set-off did arise because the mutual debts arose out of the same transaction and the same underlying dispute, namely the defendant’s delay, notwithstanding that one was in respect of the direct costs of the delay and the other about its indirect costs in the shape of the arbitration costs. An equitable estoppel arose and it would be manifestly unjust to allow the claimant to enforce payment of its costs without taking into account the cross-claim based on the adjudication decision. The claimant had chosen to commence separate adjudication proceedings in respect of the architect’s interim certificate and it could not now ask the court to ignore the outcome of those proceedings merely because the result was not to its liking. Consequently, the arbitrator’s order for payment of the balance of the costs should not be enforced.
Serena Cheng (instructed by Wheelers LLP, of Surrey) appeared for the claimant; Alan Steynor (instructed by Fladgate LLP) appeared for the defendant.
Sally Dobson, barrister