Adjudication, set-off and withholding
In Squibb Group Ltd v Vertase FLI Ltd  EWHC 1958 (TCC) (10 July 2012) the Technology and Construction Court was asked by the Claimant, Squibb Group Ltd (“Squibb”) to enforce an adjudicator’s award for £167,531.05 against the Defendant, Vertase FLI Ltd (“Vertase”).
Vertase resisted enforcement on the ground that, as it was entitled pursuant to the contract between the parties to serve a withholding notice after the adjudicator’s award and did so in the sum of £276,613.67, the amount of that withholding notice could and should be set-off against the adjudicator’s award.
Mr Justice Coulson said that as a general rule “the system of construction adjudication introduced by the Housing Grants (Construction and Regeneration) Act 1996 requires the courts to respect and enforce the adjudicator's decision.”
Going on to consider relevant caselaw, Mr Justice Coulson considered that there were two possible exceptions to the general rule that an adjudicator’s decision should be enforced. The first possible exception arises where the contractual right to set-off trumps the enforcement of an adjudicator's decision. Mr Justice Coulson said that “such cases will be relatively rare and will depend upon the precise construction of the relevant set-off provision.” That provision will require clear words to the effect that such set-off is permitted.
The second exception arises out of the nature of the adjudicator’s decision and a consideration of the contractual payment machinery agreed by the parties. Mr Justice Coulson gave the following example: “if the adjudicator's decision is instead in the nature of a declaration as to the proper operation of the contractual payment machinery, and the adjudicator identifies a sum which he says should be the subject of that machinery then, if a withholding notice can legitimately be served in accordance with those contractual payment provisions, the set-off may give rise to an arguable defence.”
Giving consideration to these possible exceptions to the general rule, Mr Justice Coulson concluded that the adjudicator’s decision should be enforced. Mr Justice Coulson explained that “the adjudicator was deciding a one-off claim in a one-off way” and “the adjudicator did not intend that there was to be any set-off or cross-claim in respect of that award.” He also concluded that the contract between the parties did not permit any withholding notice to “trump” an adjudicator’s award.
If you have any questions on this issue, please contact Philip Vickers.