MacRoberts Construction Update 10/08/12
SET-OFF AND ADJUDICATOR’S AWARDS
Two recent cases in the Technology and Construction Court (TCC) have considered the enforcement of an adjudicator's decision, where the 'losing' party claims set-off. The cases are Beck Interiors Ltd v. Classic Decorative Finishing Ltd  EWHC 1956 (TCC) and Squibb Group Ltd v. Vertase FLI Ltd  EWHC 1958 (TCC). Neither decision is particularly novel however they both provide a timely reminder of the Court's approach to an issue that arises regularly between parties post adjudication.
Beck Interiors Ltd (“Beck”) was awarded £43,081.74 at adjudication. Classic Decorative Finishing Ltd (“CDF”) resisted enforcement of the award, on the grounds that it was owed 59,156.23€ by Beck in respect of a separate contract. Mr Justice Coulson refused to uphold that line of defence and the award was enforced.
In his decision, Mr Justice Coulson stressed that, typically, there are two exceptions to the general rule that set-off cannot be relied upon by the 'losing' party to prevent or reduce enforcement of an adjudicator's award.
The first is where the express terms of the contract permit it; the second is where the nature of the adjudicator's decision permits it. For example, in relation to the latter, there have been instances where set-off has been permitted where the adjudicator's decision simply determines the value of a sum due in line with the contract machinery or where the decision instead address the operation of the contract machinery.
In Beck the contract contained no set-off provisions at all, and so there was no real requirement to look at this issue in any depth (there was nevertheless an unsuccessful attempt by CDF to rely on equitable set-off). In terms of the decision itself the adjudicator ordered immediate payment of the sums due to Beck, and so it was clear that he did not envisage any further analysis or deductions being made to that sum by CDF.
In Squibb Group Ltd (“Squibb”), the award was £167,531.05. Vertase FLI Ltd (“Vertase”) resisted enforcement of the award on the grounds that it was entitled to withhold LAD's and contra charges (both of which exceeded the amount of the adjudicator's award). Vertase was unsuccessful and the award was enforced. In Squibb, like Beck, Mr Justice Coulson set out his reasoning within the prism of (1) the contract provisions; and (2) the nature of the adjudicator's decision.
It was plain enough that the contract in Squibb included set-off provisions, however it was held that those provisions were not apt to trump the enforcement of the adjudicator's award. Mr Justice Coulson noted that although matters will always turn on the precise terms of the set-off provisions it would require very clear terms to permit set-off against a sum otherwise due; and that in the result it would in practice be very rare for such provisions to defeat an adjudicator's award.
Looking at the nature of the adjudicator's decision, it was again held that because immediate payment had been ordered there was no scope to argue that the adjudicator had permitted further analysis or deductions of the amount due to Squibb.
For further information, please contact David Arnott or Chris Duff on 0131 229 5046.
© MacRoberts 2012
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