Adjudication – Liquidated damages – Summary judgment – Defendant engaging claimant to carry out demolition work – Dispute arising over delay of completion – Adjudicator making award in favour of claimant –Defendant issuing withholding notice – Claimant seeking summary judgment – Whether defendant entitled to set off claim for liquidated damages against adjudicator’s decision – Whether Vertase able to set off other claims against adjudicator’s –- Application granted
By a sub-contract dated 20 September 2011, the defendant company engaged the claimant company to undertake asbestos removal and demolition of existing structures at a site in Leamington Spa. The work was due to be completed on 27 January 2012, but was not finished until 27 April 2012.
A dispute arose between the parties as to the responsibility for the delay. The claimant issued an adjudication claim for an extension of time and damage consequential upon the delay. The adjudicator decided, inter alia, that the claimant was entitled to an extension of time to 9 March 2012 and was entitled to compensation by way of additional costs due to the six-week delay; and that the defendant was not entitled to take liquidated damages from any amount payable to the claimant. The defendant subsequently issued a claim for liquidated damages and a claim for the un-extended period of the sub-contract.
The claimant applied for summary judgment pursuant to CPR, Part 24 to enforce the adjudicator’s decision in its favour. The defendant resisted that claim on the grounds that it was entitled to serve and rely on a withholding notice served after completion of the adjudication. Issues arose whether the defendant was entitled to set off: (i) its claim for liquidated damages against the adjudicator’s decision; and (ii) its other claims against the adjudicator’s decision.
Held: The application was granted.
(1) In general, an unsuccessful party to an adjudication could not seek to avoid the result of that adjudication by relying on the right to set-off any other claims, subject to possible exceptions where it followed logically from an adjudicator’s decision that the employer was entitled to recover a specific sum by way of liquidated and ascertained damages and where the entitlement to liquidated and ascertained damages had not been determined, either expressly or impliedly, by the adjudicator’s decision. Where there were subsequent cross-claims, the right course was for the losing party to comply with the adjudicator’s decision and not withhold payment on the ground of his anticipated recovery in a further claim: VHE Construction PLC v RBSTB Trust Co Ltd [2000] BLR 187; Balfour Beatty Construction v Serco Ltd [2004] EWHC 3336 (TCC); Interserve Industrial Services Ltd v Cleveland Bridge UK Ltd [2006] EWHC 741 (TCC); William Verry Ltd v Camden London Borough Council [2006] EWHC 761 (TCC) and Hart v Smith [2009] EWHC 2223 (TCC), [2009] PLSCS 253 considered.
(2) In the present case, the defendant was not entitled to set-off its claim for liquidated damages so as to defeat the claimant’s claim for summary judgment. The right to make such a set-off had been generally excluded, because anything else would be contrary to the Housing Grants (Construction and Regeneration) Act 1996 and the underlying purpose of construction adjudication. It would be contrary to the 1996 Act if, at least in general terms, the effect of an adjudicator’s decision could be avoided altogether by the subsequent service of a withholding notice. That was counter-intuitive and would mean that the unsuccessful party was taking undue advantage of the adjudicator’s decision to allow them some time to pay.
(3) Reading the decision as a whole, the adjudicator was not giving declaratory relief as to how the payment mechanism under the sub-contract might operate and did not intend there to be any set-off or cross-claim in respect of his award. Moreover, there was nothing in the wording of the sub-contract which could allow an unsuccessful party to adjudication to override the effect of the adjudicator’s decision or to deprive the successful party of the sum otherwise due pursuant to that decision. The set-off provision referred to payments which had been certified, whereas the adjudicator had ordered a one-off payment. The set-off provision was, in any event, couched in very general terms: Shimizu Europe Ltd v LBJ Fabrications Ltd [2003] EWHC 1229 (TCC) distinguished; Ferson Contractors Ltd v Levolux AT Ltd [2003] PLSCS 13, [2003] 05 EG 145 (CS) considered.
Furthermore, it did not follow from the adjudicator’s decision that the defendant was automatically entitled to liquidated damages for the shortfall period between 9 March and 27 April. A decision which extended the time for completion, but not for the whole period of delay, would not automatically entitle the employer to set-off liquidated damages for the shortfall. Any other conclusion would be contrary to the clear words of the decision and would defeat an important element of the adjudicator’s decision and be contrary to all the general principles of adjudication enforcement. Accordingly, the liquidated damages element of the withholding notice did not provide an arguable defence to the claim for summary judgment: Avoncroft Construction Ltd v Sharba Homes (CN) Ltd [2008] 2 EGLR 7 considered.
(4) The adjudicator had indicated that the sum awarded should be paid immediately, without deduction since there was nothing in the sub-contract which would allow any such deduction. Accordingly, the alleged cross-claims were not open to the defendant as a means of avoiding payment of the sum awarded by the adjudicator. In addition, it could not be said that the claimant’s liability to pay the sums claimed by the defendant arose logically or naturally from the adjudicator’s decision. Insofar as those items were entirely new matters, there was nothing to stop the defendant from pursuing those claims in their own adjudication which they had indicated they wanted to do.
Olivia Chaffin-Laird (instructed by Enyo Law) appeared for the claimant; Alexandra Bodnar (instructed by TLT LLP) appeared for the defendant.
Eileen O’Grady, barrister
Adjudication – Liquidated damages – Summary judgment – Defendant engaging claimant to carry out demolition work – Dispute arising over delay of completion – Adjudicator making award in favour of claimant –Defendant issuing withholding notice – Claimant seeking summary judgment – Whether defendant entitled to set off claim for liquidated damages against adjudicator’s decision – Whether Vertase able to set off other claims against adjudicator’s –- Application grantedBy a sub-contract dated 20 September 2011, the defendant company engaged the claimant company to undertake asbestos removal and demolition of existing structures at a site in Leamington Spa. The work was due to be completed on 27 January 2012, but was not finished until 27 April 2012. A dispute arose between the parties as to the responsibility for the delay. The claimant issued an adjudication claim for an extension of time and damage consequential upon the delay. The adjudicator decided, inter alia, that the claimant was entitled to an extension of time to 9 March 2012 and was entitled to compensation by way of additional costs due to the six-week delay; and that the defendant was not entitled to take liquidated damages from any amount payable to the claimant. The defendant subsequently issued a claim for liquidated damages and a claim for the un-extended period of the sub-contract.The claimant applied for summary judgment pursuant to CPR, Part 24 to enforce the adjudicator’s decision in its favour. The defendant resisted that claim on the grounds that it was entitled to serve and rely on a withholding notice served after completion of the adjudication. Issues arose whether the defendant was entitled to set off: (i) its claim for liquidated damages against the adjudicator’s decision; and (ii) its other claims against the adjudicator’s decision. Held: The application was granted. (1) In general, an unsuccessful party to an adjudication could not seek to avoid the result of that adjudication by relying on the right to set-off any other claims, subject to possible exceptions where it followed logically from an adjudicator’s decision that the employer was entitled to recover a specific sum by way of liquidated and ascertained damages and where the entitlement to liquidated and ascertained damages had not been determined, either expressly or impliedly, by the adjudicator’s decision. Where there were subsequent cross-claims, the right course was for the losing party to comply with the adjudicator’s decision and not withhold payment on the ground of his anticipated recovery in a further claim: VHE Construction PLC v RBSTB Trust Co Ltd [2000] BLR 187; Balfour Beatty Construction v Serco Ltd [2004] EWHC 3336 (TCC); Interserve Industrial Services Ltd v Cleveland Bridge UK Ltd [2006] EWHC 741 (TCC); William Verry Ltd v Camden London Borough Council [2006] EWHC 761 (TCC) and Hart v Smith [2009] EWHC 2223 (TCC), [2009] PLSCS 253 considered. (2) In the present case, the defendant was not entitled to set-off its claim for liquidated damages so as to defeat the claimant’s claim for summary judgment. The right to make such a set-off had been generally excluded, because anything else would be contrary to the Housing Grants (Construction and Regeneration) Act 1996 and the underlying purpose of construction adjudication. It would be contrary to the 1996 Act if, at least in general terms, the effect of an adjudicator’s decision could be avoided altogether by the subsequent service of a withholding notice. That was counter-intuitive and would mean that the unsuccessful party was taking undue advantage of the adjudicator’s decision to allow them some time to pay. (3) Reading the decision as a whole, the adjudicator was not giving declaratory relief as to how the payment mechanism under the sub-contract might operate and did not intend there to be any set-off or cross-claim in respect of his award. Moreover, there was nothing in the wording of the sub-contract which could allow an unsuccessful party to adjudication to override the effect of the adjudicator’s decision or to deprive the successful party of the sum otherwise due pursuant to that decision. The set-off provision referred to payments which had been certified, whereas the adjudicator had ordered a one-off payment. The set-off provision was, in any event, couched in very general terms: Shimizu Europe Ltd v LBJ Fabrications Ltd [2003] EWHC 1229 (TCC) distinguished; Ferson Contractors Ltd v Levolux AT Ltd [2003] PLSCS 13, [2003] 05 EG 145 (CS) considered. Furthermore, it did not follow from the adjudicator’s decision that the defendant was automatically entitled to liquidated damages for the shortfall period between 9 March and 27 April. A decision which extended the time for completion, but not for the whole period of delay, would not automatically entitle the employer to set-off liquidated damages for the shortfall. Any other conclusion would be contrary to the clear words of the decision and would defeat an important element of the adjudicator’s decision and be contrary to all the general principles of adjudication enforcement. Accordingly, the liquidated damages element of the withholding notice did not provide an arguable defence to the claim for summary judgment: Avoncroft Construction Ltd v Sharba Homes (CN) Ltd [2008] 2 EGLR 7 considered. (4) The adjudicator had indicated that the sum awarded should be paid immediately, without deduction since there was nothing in the sub-contract which would allow any such deduction. Accordingly, the alleged cross-claims were not open to the defendant as a means of avoiding payment of the sum awarded by the adjudicator. In addition, it could not be said that the claimant’s liability to pay the sums claimed by the defendant arose logically or naturally from the adjudicator’s decision. Insofar as those items were entirely new matters, there was nothing to stop the defendant from pursuing those claims in their own adjudication which they had indicated they wanted to do. Olivia Chaffin-Laird (instructed by Enyo Law) appeared for the claimant; Alexandra Bodnar (instructed by TLT LLP) appeared for the defendant.Eileen O’Grady, barrister
