Construction contract – Adjudicators’ awards – Claim for enforcement – Right to set-off – Entitlement to stay – First adjudicator deciding claimant contractor entitled to sums under terms of contract – Second adjudicator deciding defendant employer entitled to claim liquidated damages – Claimant seeking to enforce first adjudicator’s decision – Whether defendant entitled to set-off – Whether stay to be granted by reason of claimant’s parlous financial position and contractual obligation to repay sums due – Claim allowed in part – Defendant’s applications allowed
The defendant engaged the claimant to carry out the design and construction of a new medical centre pursuant to a written contract in JCT design and build form (2005 ed, 2007 revision). The contract provided for the defendant to make an advance payment of £300,000 to the claimant in October 2007 in order to cover the latter’s start-up costs; that sum was repayable once the final account had been agreed. The defendant paid £252,000 in advance payment in accordance with a breakdown of start-up costs supplied by the claimant. Contrary to the contractual mechanism, that sum was subsequently deducted from an interim valuation in November 2007, so that the advance payment was effectively repaid too soon. The claimant made no complaint about this until November 2008, when it claimed the sum of £300,000 in accordance with the contract. Relations between the parties deteriorated and the contract was terminated in April 2009. The claimant did not put forward any final account, despite its contractual obligation to do so within two months of the date of termination.
An adjudicator subsequently decided that the claimant was entitled to the £300,000 claimed, plus interest. In a second adjudication, it was decided that the defendant was entitled to claim £180,000 from the claimant in respect of liquidated and ascertained damages for culpable delay, although it could not deduct that amount from the sums otherwise due to the claimant since it had not served a valid withholding notice.
The claimant brought proceedings to enforce the adjudication decision in respect of the £300,000 advance payment. The defendant applied to the court for: (i) a declaration that it was entitled to set off against that claim the award of £180,000 in its favour; and (ii) a stay of execution of any judgment for the claimant pursuant to RSC Ord 47. It argued that the stay should be granted since the claimant was not in a financial position to repay the £300,000 it was required to once the final account was resolved, and the final account ought already to have been prepared.
Held: The claim was allowed in part; the defendants’ applications were allowed.
(1) The majority of cases dealing with set-off against an adjudicator’s decision involved a situation where the adjudicator had awarded a sum of money to one party, but it was said logically to follow from that decision that the other party would be entitled to a separate sum, often by way of liquidated damages: Balfour Beatty Construction v Serco Ltd [2004] EWHC 3336 (TCC) applied. A stronger case for set-off arose in the instant case, where there was a second adjudication decision deciding in clear and unequivocal terms that the defendant, as employer, was entitled to recover a specific sum by way of liquidated and ascertained damages. There was nothing in the second adjudicator’s decision to prohibit any set-off. His decision was temporarily binding on all parties and could be enforced by the court. The two adjudication decisions could be set off against one another. The claimant’s entitlement to £300,000 should be the subject of a set-off of £180,000 to reflect the defendant’s right to claim that sum by way of liquidated damages.
(2) RSC Ord 47 gave a wide discretion to the court where there were “special circumstances” that rendered it inexpedient to enforce a judgment. Where it was sought to stay a judgment enforcing an adjudicator’s decision, the inability of the successful party to repay the sum awarded by the adjudicator at the end of the substantive trial or arbitration hearing could constitute special circumstances rendering it appropriate to grant a stay, unless that party’s present financial position was the same as, or similar to, its position when the relevant contract was made or was due, wholly or not insignificantly, to the other party’s failure to pay the sums awarded by the adjudicator: Hershel Engineering Ltd v Breen Property Ltd No 1 [2000] BLR 272 and Wimbledon Construction Co 2000 Ltd v Vago [2005] EWHC 1086 (TCC); [2005] BLR 374 applied. The claimant’s present financial position meant that it could not repay the £300,000. Its position had significantly altered since the time of contracting; although it had always been a shell company with no fixed assets, it had been making a modest profit on turnover at the time, but was now making a significant loss, which was set to increase in the current year. The evidence did not support a finding that the defendant was responsible for that change. Accordingly, a stay was justified. The terms of the contract provided a further reason to grant the stay in that the defendant had an unquestionable entitlement to imminent repayment of the £300,000 once the final account was considered and resolved. The final account process should already have been completed and responsibility for the delay rested with the claimant. It could not rely on its own delay in order to put itself in a better position in respect of the £300,000.
Accordingly, the defendant’s entitlement to £180,000 should be set-off against the £349,784 due to the claimant (£300,000 plus interest); the resulting judgment for £169,784 in the claimant’s favour would be stayed.
Luke Wygas (instructed by Reynolds Colman Bradley LLP) appeared for the claimant; Abdul Jinadu (instructed by Blake Lapthorn Tarlo Lyons, of Oxford) appeared for the defendant.
Sally Dobson, barrister
