Adjudication – Award – Set-off – Defendants employing claimant to carry out building works Dispute arising as to final payment for works – Adjudicator making award in favour of claimant – Defendants withholding payment in respect of liquidated damages – Claimant bringing proceedings for balance due – Whether defendants entitled to set off claim for liquidated damages against adjudicator’s award – Claim allowed
By a contract made in July 2010, the defendants employed the claimant to carry out extensive construction and conversion works at their home in Chalfont ST Giles, Bucks. The contract incorporated the JCT Intermediate Form of Building Contract with Contractor’s Design (Revision 2 2009). The possession date was 2 August 2010 with a completion date of 14 March 2011 and the original contract sum was just over £600,000. Relevant terms included extension of time provisions, a liquidated damages clause for late completion and provisions for interim and final payment certificates. There was an adjudication clause requiring the parties to comply with the decision of an adjudicator. There were substantial variations and the sum due to the claimant increased to over £1 million. There were delays and extensions of time were granted up until 8 August 2011.
A dispute arose in relation to the final sum owed to the claimant which referred the matter to adjudication. The notice of adjudication asked the adjudicator to determine and decide that the amount due to the claimant “following the employer’s failure to pay amounts due” in the sum of £190,102.89 or such other sum and that the defendants should pay such sum without set-off. The defendants stated that a final certificate could not be issued because the quality and standard of goods, materials and workmanship was not to the reasonable satisfaction of the contract administrator. They also counterclaimed for deductions, damages for defects and outstanding snagging and remedial works, together with liquidated damages.
The adjudicator awarded the claimant the sum of £88,606.22 plus VAT to be paid within 14 days. He made no award in respect of liquidated damages and made it clear that there should be no set-off, albeit that the defendants were entitled to set off the specific sums already allowed to them in the adjudicator’s calculations. The contract administrator then issued an interim payment certificate certifying a net sum due for payment of £88,606.22 plus VAT. On the same day, the defendants wrote to the claimant stating that they intended to withhold payment of £40,000 in relation to liquidated damages but they paid the balance. The claimant subsequently issued proceedings for balance of £40,000 remaining due.
The question for the court was whether the defendants were entitled to set off their liquidated damages claim against the adjudicator’s decision.
Held: The claim was allowed.
(1) Where a party sought to set-off against or withhold from sums which an adjudicator had said were to be paid, the first exercise was to interpret or construe what the adjudicator had decided. In that context, one could look at the dispute as it was referred to him or her, which could involve looking at the notice of adjudication, the referral notice, the response and other pleading type documents. One could have regard to the underlying construction contract but primarily one needed to look at the decision itself. In looking at what the adjudicator decided, one could distinguish between the decisive and directive parts of the decision on the one hand and the reasoning on the other, although the decisive and directive parts needed to be construed to include other findings which formed an essential component of or basis for the decision: Hyder Consulting (UK) Ltd v Carillion Construction Ltd [2011] EWHC 1810 (TCC); [2011] PLSCS 197 applied.
(2) The general position was that adjudicators’ decisions which directed that a party was to pay money were to be honoured and no set-off or withholding against payment of that amount should be permitted. There were limited exceptions. A specified contractual right to set-off which did not offend against the statutory requirement for immediate enforcement of an adjudicator’s decision was an exception albeit that it would be relatively rare. Where an adjudicator was simply declaring that an overall amount was due or due for certification, rather than directing that a balance should actually be paid, it might well be that a legitimate set-off or withholding might be justified when that amount fell due for payment or certification in the future. Where otherwise it could be determined from the adjudicator’s decision that the adjudicator was permitting a further set-off to be made against the sum otherwise decided as payable, that might well be sufficient to allow the set-off to be made: Balfour Beatty Construction Ltd v Serco Ltd [2004] EWHC 3336 (TCC) and Squibb Group Ltd v Vertase FLI Ltd [2012] EWHC 1958 (TCC); [2013] PLSCS 5 applied.
(3) In the present case, if the exercise had been simply to construe or interpret the adjudicator’s decision on the basis of the wording, there was no doubt that there would be no right of set-off or withholding. The confusion arose because the adjudicator had formed the view that issues as to the date of practical completion, extension of time and liquidated damages should be left over to another day. In deferring the question of liquidated damages, the adjudicator had fallen into error. That issue was part of the dispute which he was required to resolve because it was raised at least as a defence by way of set-off to the disputed claim. It would be wrong to construe or interpret the decision as meaning that the adjudicator was saying that he was expecting, anticipating or permitting the loser in the adjudication to be able to set off the clearly and obviously disputed claim for liquidated damages. On a proper reading in context of the decision, the final words directed the defendants to pay the claimant the specified amount. As an experienced construction law barrister, if the adjudicator had expected such a set-off, he would have said so.
Charles Pimlott (instructed by Silver Shemmings LLP) appeared for the claimant; James Bowling (instructed by Charles Russell LLP) appeared for the defendants.
Eileen O’Grady, barrister
Adjudication – Award – Set-off – Defendants employing claimant to carry out building works Dispute arising as to final payment for works – Adjudicator making award in favour of claimant – Defendants withholding payment in respect of liquidated damages – Claimant bringing proceedings for balance due – Whether defendants entitled to set off claim for liquidated damages against adjudicator’s award – Claim allowedBy a contract made in July 2010, the defendants employed the claimant to carry out extensive construction and conversion works at their home in Chalfont ST Giles, Bucks. The contract incorporated the JCT Intermediate Form of Building Contract with Contractor’s Design (Revision 2 2009). The possession date was 2 August 2010 with a completion date of 14 March 2011 and the original contract sum was just over £600,000. Relevant terms included extension of time provisions, a liquidated damages clause for late completion and provisions for interim and final payment certificates. There was an adjudication clause requiring the parties to comply with the decision of an adjudicator. There were substantial variations and the sum due to the claimant increased to over £1 million. There were delays and extensions of time were granted up until 8 August 2011.A dispute arose in relation to the final sum owed to the claimant which referred the matter to adjudication. The notice of adjudication asked the adjudicator to determine and decide that the amount due to the claimant “following the employer’s failure to pay amounts due” in the sum of £190,102.89 or such other sum and that the defendants should pay such sum without set-off. The defendants stated that a final certificate could not be issued because the quality and standard of goods, materials and workmanship was not to the reasonable satisfaction of the contract administrator. They also counterclaimed for deductions, damages for defects and outstanding snagging and remedial works, together with liquidated damages.The adjudicator awarded the claimant the sum of £88,606.22 plus VAT to be paid within 14 days. He made no award in respect of liquidated damages and made it clear that there should be no set-off, albeit that the defendants were entitled to set off the specific sums already allowed to them in the adjudicator’s calculations. The contract administrator then issued an interim payment certificate certifying a net sum due for payment of £88,606.22 plus VAT. On the same day, the defendants wrote to the claimant stating that they intended to withhold payment of £40,000 in relation to liquidated damages but they paid the balance. The claimant subsequently issued proceedings for balance of £40,000 remaining due.The question for the court was whether the defendants were entitled to set off their liquidated damages claim against the adjudicator’s decision.Held: The claim was allowed.(1) Where a party sought to set-off against or withhold from sums which an adjudicator had said were to be paid, the first exercise was to interpret or construe what the adjudicator had decided. In that context, one could look at the dispute as it was referred to him or her, which could involve looking at the notice of adjudication, the referral notice, the response and other pleading type documents. One could have regard to the underlying construction contract but primarily one needed to look at the decision itself. In looking at what the adjudicator decided, one could distinguish between the decisive and directive parts of the decision on the one hand and the reasoning on the other, although the decisive and directive parts needed to be construed to include other findings which formed an essential component of or basis for the decision: Hyder Consulting (UK) Ltd v Carillion Construction Ltd [2011] EWHC 1810 (TCC); [2011] PLSCS 197 applied.(2) The general position was that adjudicators’ decisions which directed that a party was to pay money were to be honoured and no set-off or withholding against payment of that amount should be permitted. There were limited exceptions. A specified contractual right to set-off which did not offend against the statutory requirement for immediate enforcement of an adjudicator’s decision was an exception albeit that it would be relatively rare. Where an adjudicator was simply declaring that an overall amount was due or due for certification, rather than directing that a balance should actually be paid, it might well be that a legitimate set-off or withholding might be justified when that amount fell due for payment or certification in the future. Where otherwise it could be determined from the adjudicator’s decision that the adjudicator was permitting a further set-off to be made against the sum otherwise decided as payable, that might well be sufficient to allow the set-off to be made: Balfour Beatty Construction Ltd v Serco Ltd [2004] EWHC 3336 (TCC) and Squibb Group Ltd v Vertase FLI Ltd [2012] EWHC 1958 (TCC); [2013] PLSCS 5 applied.(3) In the present case, if the exercise had been simply to construe or interpret the adjudicator’s decision on the basis of the wording, there was no doubt that there would be no right of set-off or withholding. The confusion arose because the adjudicator had formed the view that issues as to the date of practical completion, extension of time and liquidated damages should be left over to another day. In deferring the question of liquidated damages, the adjudicator had fallen into error. That issue was part of the dispute which he was required to resolve because it was raised at least as a defence by way of set-off to the disputed claim. It would be wrong to construe or interpret the decision as meaning that the adjudicator was saying that he was expecting, anticipating or permitting the loser in the adjudication to be able to set off the clearly and obviously disputed claim for liquidated damages. On a proper reading in context of the decision, the final words directed the defendants to pay the claimant the specified amount. As an experienced construction law barrister, if the adjudicator had expected such a set-off, he would have said so.Charles Pimlott (instructed by Silver Shemmings LLP) appeared for the claimant; James Bowling (instructed by Charles Russell LLP) appeared for the defendants.Eileen O’Grady, barrister
