Neutral Citation Number: [2013] EWHC 2071 (TCC)

Case No: HT-13-200

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

TECHNOLOGY AND CONSTRUCTION COURT

 

Royal Courts of Justice

Strand, London, WC2A 2LL

 

Date: 17 th July 2013

 

Before :

 

MR JUSTICE AKENHEAD

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Between:

 

 

THAMESIDE CONSTRUCTION COMPANY LIMITED

Claimant

 

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(1) MR J STEVENS

(2) MRS J L STEVENS

 

Defendants

 

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Charles Pimlott (instructed by Silver Shemmings LLP ) for the Claimant

James Bowling (instructed by Charles Russell LLP ) for the Defendants

 

Hearing date: 9 July 2013

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JUDGMENT


Mr Justice Akenhead:

Introduction

  1. This adjudication enforcement case raises again the sometimes vexed question of whether and when a party against whom an adjudicator has decided may seek to set off against the sum said by the adjudicator to be due and avoid or defer payment.

The Background

  1. By a contract made in July 2010, Mr and Mrs Stevens employed Thameside Construction Company Ltd ("Thameside") to carry out extensive extension, construction and conversion works at their home Roughwood Croft, Nightingales Lane, 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 totalled just over £600,000. Relevant terms included extension of time provisions, a liquidated damages clause for late completion and provision for interim and final payments certificates. There was an adjudication clause which incorporated the Scheme, which broadly requires the parties to comply with and put into effect the decision of an adjudicator. Somewhat unusually, Mrs Stevens or her firm was the Contract Administrator as well as the Quantity Surveyor.

  2. It is common ground that there were substantial variations and on any count the sum due to Thameside went up to over £1 million. There were delays and extensions of time were granted up until 8 August 2011. There was and remains an issue between the parties as to when practical completion took place but Mr and Mrs Stevens apparently took possession of at least part of the property in October 2011, another part in December 2011 and possibly a further part in January or possibly March 2012. On 23 March 2012, the Contract Administrator issued a Certificate of Non-Completion stating that Thameside had not achieved Practical completion on 8 August 2011.

  3. On 21 June 2012, Thameside submitted to Mr and Mrs Stevens its Interim Application No 16 in the gross sum of £1,310,998.39. It seems that both parties treated this as a final account. Mrs Stevens issued her assessment on 2 November 2012 valuing the work in the gross sum of £1,185,535.01 from which contra charges of £58,105.44 were to be deducted. By the time of the adjudication, Mr and Mrs Stevens had paid a little over £1.1 million.

  4. On 1 March 2013, Thameside through consultants served a Notice of Adjudication on Mr and Mrs Stevens which identified that a dispute had arisen "following the Employer’s failure to pay amounts due" and seeking "a peremptory Decision from the Adjudicator". The Notice identified that the adjudicator was asked to determine and decide that the amount due to Thameside was £190,102.89 or such other sum and that Mr and Mrs Stevens should pay such sum "without set off".

The Adjudication

  1. A well-known construction lawyer, Mr Rowan Planterose, was appointed as the adjudicator. Thameside served its Referral Notice on 7 March 2013 which provided more details. It referred to the various interim and final payment provisions of the contract. The relief claimed was the same as in the Notice of Adjudication.

  2. Mr and Mrs Stevens submitted their Response shortly thereafter. Paragraph 6.1 stated

“…it is agreed that [Thameside] issued Interim Application No 16 on 21 June 2012. For all intents and purposes, this was submitted for the purposes of agreeing the final account. As at that date, it is accepted that [the Stevens] had paid… £1,101,597.02…However, this does not address the question of whether practical completion was achieved. [The Stevens aver] that the adjudicator has not been asked in the Notice of Adjudication to determine the question of practical completion and is therefore falls outside the jurisdiction of this adjudication."

  1. The Response went on to assert that a final certificate could not be issued because the quality and standard of the goods, materials and workmanship was not to the reasonable satisfaction of the Contract Administrator (Paragraph 9.3). It specifically raised a Counterclaim which comprised essentially two elements, deductions and damages for defects and outstanding snagging and remedial works and also a claim for liquidated damages. £88,891.40 was counter-claimed for defects and £60,000 for liquidated damages. This latter figure was predicated upon there being £48,000 due for delay between 8 August 2011 and 27 January 2012 and a further £12,000 thereafter up to 14 March 2012 when Mr and Mrs Stevens asserted that they had taken possession of the final part of the Works, namely the "Leisure Complex". In Paragraph 13.2.2 they sought a declaration that they were entitled to set off their counterclaim against any sum decided to be due to Thameside and that they were entitled to £148,891.40 for their counterclaims. In Paragraph 13.2.3, they sought a declaration that they were entitled to succeed in the sum of £148,891.40 in relation to the defects and liquidated damages counterclaims.

  2. Thameside served a Reply on 5 April 2013. It asserted (at Paragraph 11.3) that no counterclaim could be advanced as Mr and Mrs Stevens had not issued any notice of withholding. It challenged the assertions that there were defects putting in written evidence on the topic. So far as the liquidated damages claim was concerned, it was denied. It denied that the Works were completed late and asserted an entitlement to extension of time up to 23 December 2011 when, it said, Mr and Mrs Stevens took full possession of the site, having taken partial possession on 24 October 2011.

  3. There were further written exchanges on 10 April 2013 (Thameside to the adjudicator) and on 15 April 2013 (Mr and Mrs Stevens’ solicitors to the adjudicator); this was mostly related to whether or not the absence of withholding notices was fatal to the counterclaims. There were some final written representations by e-mail on 23 April 2013 from Thameside to the adjudicator (although nothing turns on that).

  4. The Adjudicator issued his decision on 24 April 2013. The prose part of the decision runs to only eight pages but much of the work was done in attached schedules which reviewed the 220 items in dispute. At Paragraph 7, he found that Application No 16 "was clearly regarded as the Final Account" going on to say that by October 2012 "the contractual mechanisms of payments had evidently fallen apart". He went on:

“10. Accordingly the contractual context of this adjudication is something of a muddle, there being no Practical Completion Certificate to trigger subsequent events under the Contract, but at the same time much of the contractual regime as to matters such as defects having been broadly followed.

 

11. In the Referral I am asked to award [Thameside] the sum of £190,102.89 plus interest, paragraph 7.4 thereof noting that the ‘value of the adjusted Contract Sum is in dispute and, therefore, the Adjudicator is respectfully to decide the same.’ At the same time I am not asked to determine when and whether practical completion has taken place. The Stevens specifically say I have no jurisdiction to determine the same, yet they make a claim to £60,000 liquidated damages, the parameters of which would be set by a completion certificate. In turn [Thameside] make no extension of time claim in their Referral, but in defence of the liquidated damages claim seek to demonstrate they would be entitled to such an extension in Mr Gradwell’s evidence in the Response.

 

12. It seems to me that the only practical way to deal with this is to approach it on the basis that this is an application for a further interim certificate, leaving over any issues as to precisely when practical completion occurred, as to extension of time and therefore liquidated damages to another day. At the same time I shall bear in mind that the parties do in fact mutually intend (or indeed wish) this to act as a Final Account and have themselves approached it on this basis following in broad terms the 6 month for submission of full information by the contractor and 3 months for response envisaged by the contract. Equally it seems to me that I should acknowledge that practical completion has occurred, occupation itself now being a matter of history. As the Stevens write in the Response of Application 16: ‘For all intents and purposes, this was submitted for the purpose of agreeing the final account.’

 

[The footnote to Paragraph 12 stated:

 

"(I would, in any event, be doubtful of any, or any substantial, entitlement to Liquidated Damages. Against an August 2011 completion date, part possession occurred in October 2011 and full possession in December 2011/March 2012. In the course of the Works there were regular instructions and changes which have disrupted progress, albeit I accept [Thameside] no doubt suffered some of their own difficulties with sub-contractors etc. Nonetheless I think it likely that on a full analysis [Thameside] would be entitled to some, if not a full extension, at least to the 23 rd December and later, if in fact practical completion occurred at a later date.)

 

[17. He accepted the argument of Mr and Mrs Stevens that no withholding notices were required on their part]

 

[18 – 29. He reviewed the parties’ positions on the final account and variation account figures.]

 

30. As the Final Account summary shows, this results in a balance due to Thameside of £88,606.22 for which I shall make an order for immediate payment on grounds this decision is the equivalent of an interim certificate. I shall make no order for any interest in addition, the payment mechanism having broken down as I have described. However, this sum should be paid within the contractual time period of 14 days, after which contractual interest under clause 4.8 flows…

 

32. Accordingly in answer to the prayer for relief at paragraph 13 of the Referral:

 

a. The amount due to the Referring Party is £88,606.22 plus VAT;

 

b. The Responding Party shall pay to the Referring Party the sum of £88,606.22 plus VAT within 14 days;

 

c. No interest will be awarded, save that interest under clause 4.8 will be payable if the principal sum is not paid within 14 days of this decision…”

 

33. In addition [Mr and Mrs Stevens] asked I should make a number of declarations. In respect of these and using the paragraph numbers in the Response:

a. 13.2.1 – [Thameside] is entitled to £88,606.22 plus VAT.

 

b. 13.2.2 – [Mr and Mrs Stevens are] entitled to set off to the extent I have allowed my calculations.

 

c. 13.2.3 - [Mr and Mrs Stevens are] entitled to succeed to the extent I have allowed in my calculations, but a balance is payable by [them] to [Thameside]…

 

“ACCORDINGLY I Decide and Direct

 

1. That the Responding Party pays to the Referring Party the sum of £88,606.22 plus VAT within 14 days;

 

2. That in the event the sum is not paid within 14 days, interest accrues thereafter in accordance with clause 4.8 of the contract;

 

3. That (subject to the joint and several liability of the parties) each party shall pay 50% of my fees and expenses within 14 days of receipt of invoice.”

  1. The adjudicator’s attached Final Account schedule sets out every item in issue putting his figures against each item of work and the like; in relation to "Liquidated Damages" he allowed “£0.00”.

  2. 6 days later on 30 April 2013 the Contract Administrator (Mrs Stevens’ firm) duly issued and Interim Payment certificate No 16 certifying a net sum due for payment of £88,606.22 plus VAT at £17,721.24. On the same day, Mr and Mrs Stevens wrote to Thameside purporting to give a "Withholding Notice pursuant to clause 4.8.3 of the Building Contract" stating that it was their intention to withhold payment of £40,000 in relation to liquidated damages. They duly paid the balance of £66,327.46.

The Proceedings

  1. On 10 June 2013, Thameside issued proceedings for the balance of the sum said to be due as a result of the adjudicator’s decision, namely £40,000. That was supported by Particulars of Claim and by two statements from Mr Harris of Thameside. No evidence as such was put in by Mr and Mrs Stevens but a Defence supported by a Statement of Truth from the solicitor was filed. They asserted in the Defence that the Adjudicator’s decision could be and was to be treated in effect as equivalent to an interim certificate and, construing the decision according to its terms and context, Mr and Mrs Stevens were entitled to set off or withhold against the sum payable pursuant to the decision provided that the withholding was done in accordance with the contract between the parties. Liquidated damages were due for the period between 8 August and 23 December 2011 at the rate of £2,000 a week.

  2. The argument before the Court has revolved around whether or not Mr and Mrs Stevens were entitled to set off their liquidated damages claim against the decision.

The Law

  1. There can be no doubt that, to determine the issue as to whether or not the losing party in an adjudication can set off against sums said to be payable by the adjudicator’s decision, one needs to consider the terms of the decision itself. In Shimizu Europe Ltd v LBJ Fabrications Ltd [2003] EWHC 1229 (TCC), HHJ Kirkham had to address an adjudicator’s decision which that the claimant should pay the defendant a sum "without set off" with payment to be made "not later than 28 days after [the defendant] has delivered a VAT invoice or authenticated VAT receipt". The claimant wished to set off and brought proceedings for declarations that it was or would be entitled to set off. HHJ Kirkham decided that properly construed the decision only related to pre-adjudication withholding notices but did not reach a decision as to a specific future set off and the adjudicator had not sought to fetter any rights which the defendant might still have (Paragraph 20). She concluded that the claimant was entitled to serve a withholding notice in relation to the sum which the adjudicator decided would become due on delivery of the VAT invoice (Paragraph 31).

  2. An earlier case, David McLean Housing Contractors Ltd v Swansea Housing Association Ltd [2002] BLR 125, a decision of HHJ LLoyd QC, was concerned amongst other things with an adjudicator’s decision following which a withholding notice was at least arguably served. It is not immensely helpful to the debate in this case because the terms of the adjudicator's decision are not spelt out. The notice of adjudication however talked about the Referring Party’s "entitlement" to loss and expense and two extensions as well as "proper valuations" of variations and measured work. This may give at least a clue to what the adjudicator’s decision might have addressed, namely that it was a declaration as to entitlement and valuation but rather than directive in terms of immediate payment. The judgement refers to the judgement of Lord Justice Chadwick in Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd [2000] BLR 522 which confirmed that an adjudicator’s decision can give rise to an immediate payment obligation.

  3. In Conor Engineering Ltd v Les Constructions Industrielles de La Mediterranee (CNIM) SA [2004] EWHC 899 (TCC), a number of issues arose where the adjudicator had in two decisions ordered payment by the defendant of identified money sums within 14 days of the date of the decisions and nine days later purported withholding notices were served by the defendant. The argument revolved around a contract term which required the withholding notice to have been served no later than seven days thereafter. Mr Recorder Blunt QC was unimpressed particularly given the withholding notice was served nine days later. In Paragraph 49 he emphasised that the adjudicator had ruled that the defendant should pay within 14 days of the decision. This case does not help very much.

  4. Mr Justice Jackson (as he then was) addressed an adjudicator’s decision directing that the defendant should pay the claimant a specified sum of money in Balfour Beatty Construction v Serco Ltd [2004] EWHC 3336 (TCC). He referred at Paragraph 48 in his judgment to the decision of HHJ Hicks QC in VHE Construction PLC v RBSTB Trust Co Ltd [2000] BLR 187 where he had concluded that an employer’s obligation to comply with the adjudicator's decision meant: "…comply, without recourse to defences or cross claims not raised in the adjudication." He referred to various other decisions including the David McLean case and stated at Paragraph 53:

“I derive two principles of law from the authorities, which are relevant for present purposes.

a. Where it follows logically from an adjudicator's decision that the employer is entitled to recover a specific sum by way of liquidated and ascertained damages, then the employer may set off that sum against monies payable to the contractor pursuant to the adjudicator's decision, provided that the employer has given proper notice (insofar as required).

b. Where the entitlement to liquidated and ascertained damages has not been determined either expressly or impliedly by the adjudicator's decision, then the question whether the employer is entitled to set off liquidated and ascertained damages against sums awarded by the adjudicator will depend upon the terms of the contract and the circumstances of the case.”

He went on to address particular issues in the case:

54. In the present case, for the reasons set out in paragraph 5 of this judgment, the adjudicator has not reached any definitive conclusion as to the total extension of time which is due to Balfour Beatty. No specific entitlement to liquidated and ascertained damages follows logically from the adjudicator's decision. It is strongly disputed between the parties whether any liquidated and ascertained damages are due and payable. Paragraph 10 of Appendix A to Schedule 23 of the Contract requires both parties to give effect forthwith to the adjudicator's decision. The effect of paragraph 13 of Appendix A is that Balfour Beatty is entitled to the relief and remedies set out in the adjudicator's decision and, moreover, is entitled to summary enforcement of such relief and remedies. These contractual provisions are consistent with the provisions of Part 2 of the Construction Act and with the Parliamentary intention referred to in the authorities.

55. On the basis of these contractual provisions, in my judgment, Serco is obliged to pay to Balfour Beatty the sum awarded by the adjudicator. Serco is not entitled to set off the liquidated and ascertained damages which it claims. In these circumstances, it is not necessary to address the question whether the letters upon which Serco relies constitute effective withholding notices under s.111 of the Construction Act. Since Serco has refused to make payment, Balfour Beatty is entitled to summary judgment enforcing the adjudicator's decision.

  1. The TCC considered the issue again in Rok Building Ltd v Celtic Composting Systems Ltd [2009] EWHC 2664 (TCC), where the adjudicator had decided that the claimant should be paid a specified sum in relation to an interim payment application. No sum having been paid, the defendant issued a further certificate from which retention and delay damages were deducted. The judgment contains the following material paragraphs:

“17. It is now well established law and practice in the context of construction adjudications that valid adjudicators' decisions are to be enforced in effect without set off or cross claims. So far as set offs or cross claims are concerned, the logic is that these are to be raised in the adjudication and the adjudicator either allows or disallows them; it is not then appropriate that the losing party raises on enforcement proceedings either the same set offs or cross claims (which have already been adjudicated upon) or new ones which could have been but were not raised. The policy of the HGCRA is that decisions are binding. This is wholly and clearly reflected in the contract terms set out above. Mr Justice Ramsey reviewed a number of authorities in this area in William Verry Ltd v London Borough of Camden [2006] EWHC 761 (TCC), and said at Paragraph 43:

"In such circumstances, should the sums found due in adjudication decision number 3 give way to the disputed valuation in the final certificate? In my judgment, they should not for the following reasons: First, for the reasons set out above, I consider that the binding nature of the adjudicator's decision and the agreement of the parties to comply with that decision means that, prima facie, the adjudicator's decision should be enforced.

Secondly, if payment of an adjudication decision on the sum due on an interim certificate had to be subject to the view of the Contract Administrator/Quantity Surveyor in a subsequent certificate, then the intention of parliament and the purpose of adjudication would be defeated. Each successive certificate would defeat the decision by an adjudicator on the previous certificate."

The logic of the second point in the dictum set out above is that the adjudicator's decision, if it requires payment, should be enforced and it is not subject to the diktat, approval or further certification under the construction contract…

20. One can draw from the David McLean decision the propositions that the Court must interpret adjudicators' decisions not only from the words used by the adjudicator but also in the context of the dispute which was referred to adjudication. There may be disputes between the parties as to whether money should be paid or should have been paid but there may also be disputes, as in the David McLean case, as to the true value of elements in a previous valuation. Put another way, the crystallised dispute may involve or require a declaration as to what the true value is or a directive decision that money be paid. This issue in any given case will depend on the facts of the case and the wording used in any given adjudicator's decision.”

The adjudicator’s decision was enforced.

  1. In Hyder Consulting (UK) Ltd v Carillion Construction Ltd [2011] EWHC 1810 (TCC), Mr Justice Edwards-Stuart was concerned with a natural justice challenge to an adjudicator’s decision but it was necessary for him to analyse what the adjudicator did or did not do. He stated, materially, as follows:

“36. Since it is the decision of the adjudicator that is binding on the parties, not his reasoning, one must consider what is meant by " the decision of the adjudicator ". In most cases the adjudicator will determine that a sum of money is due from one party to the other and the decision will therefore consist of a declaration that the particular sum is due, together with related declarations in relation to the amount of interest and questions of costs. In that type of decision, it is clear beyond doubt that the adjudicator's conclusion that A owes (and must pay) £X to B is binding until finally determined by litigation or arbitration.

37. However, suppose that the adjudicator's reason for deciding that the sum owed to B is £X is that he has decided that B was entitled to an extension of time of Y weeks with a weekly prolongation cost of £Z. In this situation, I find it difficult to see how it could be said that the amount of the extension of time to which B was found to be entitled was not also part of the decision and therefore not binding as between A and B (subject, of course, to B having the right to argue in a subsequent adjudication that he is entitled to a further extension of time on the grounds not put before the adjudicator in the first adjudication). In my judgment, in that situation an adjudicator's conclusion on the amount of the extension of time attributable to the stated events would also be binding on the parties (until finally determined otherwise).

38. Accordingly, I consider that an adjudicator's decision consists of (a) the actual award (i.e. that A is to pay £X to B) and (b) any other finding in relation to the rights of the parties that forms an essential component of or basis for that award (for example, in a decision awarding prolongation costs arising out of particular events, the amount of the extension of time to which the referring party was entitled in respect of those events).”

  1. The permutations of fact between different cases and between what different adjudicators direct are emphasised in the TCC decision of the same judge in R&C Electrical Engineers Ltd Shaylor Construction Ltd [2012] EWHC 1254 (TCC). The adjudicator, having decided that the “Final Sub-Contract Sum was £1,495,034, of which R&C had been paid £1,298,071, leaving a balance representing the Final Payment of £196,963” then stated in his decision: " Any sum to which R&C are entitled to be paid by Shaylor shall not be paid forthwith (but only following issue of the Final Certificate under the Main Contract and then in accordance with clause 21.8 (b))”. R&C brought a claim for the immediate payment of the sum saying that the contractual machinery relating to certification of that sum had broken down. However, it failed to convince the judge that this procedure had broken down and found that the question of whether R&C was entitled to immediate payment did not arise.

  2. Finally, the case of Squibb Group Ltd v Vertase FLI Ltd [2012] EWHC 1958 (TCC) concerned an adjudicator’s decision that the claimant was to be paid a specified sum within 14 days of the decision. Mr Justice Couslon examines many of the authorities referred to above. Material parts of his judgement are as follows:

“ 11. In general, an unsuccessful party to an adjudication cannot seek to avoid the result of that adjudication by relying on the right to set-off any other claims: see VHE Construction PLC v RBSTB Trust Co Ltd [2000] BLR 187. It has often been said that, where there are subsequent cross-claims, the right course is 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: see Interserve Industrial Services Ltd v Cleveland Bridge UK Ltd [2006] EWHC 741 (TCC) and Hart v Smith [2009] EWHC 2223 (TCC)…

12. Possible exceptions to this general approach were summarised by Jackson J (as he then was) in Balfour Beatty Construction v Serco Ltd [2004] EWHC 3336 (TCC), when he said at paragraph 53…[see above]

13. In similar vein, in William Verry Ltd v The Mayor of Burgesses of the London Borough of Camden [2006] EWHC 761 (TCC), Ramsey J said that the right to set-off was generally excluded. As to the particular issue of whether liquidated damages could be deducted when the adjudicator's decision deals with extensions of time, but does not deal with the consequential effect of an undisputed or undisputable claim for liquidated damages, he said that that raised "a distinct question of the manner and extent of compliance with the adjudicator's decision. It does not, in my judgment, raise a question as to the ability to set-off sums generally against an adjudicator's decision."

14. The first possible exception to the general rule turns on the proper construction of the terms of the contract. There will be some cases, such as Parsons Plastics Ltd v Purac Ltd [2002] BLR 334, where the contractual right to set-off may trump the enforcement of an adjudicator's decision. However, such cases will be relatively rare and will depend upon the precise construction of the relevant set-off provision. Clear words permitting the set-off against a sum otherwise due will usually be required. The more common analysis is that set out by the Court of Appeal in Ferson Contractors Ltd v Levolux AT Ltd [2003] BLR 118, where Mantell LJ said that the contract had to be construed so as to give effect to the intention of Parliament, rather than to defeat it, and that if the set-off provision offended the requirement for immediate enforcement of the adjudicator's decision, it should be struck down. He distinguished Parsons on the basis that it was not concerned with section 108 of the 1996 Act and was instead concerned with a rather different ad hoc adjudication procedure.

15. The second exception has arisen out of the proper interpretation of the adjudicator's decision. If the adjudicator has decided that a certain sum must be paid by X to Y, often forthwith, it is difficult to see that there could be any room for an effective withholding notice from X, or an allowable set-off of X's cross-claims against the sum found due to Y by the adjudicator. But 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.”

In relation to the latter point he moved on to consider the Shimizu , Conor and R&C cases. He went on to consider the adjudicator’s decision:

“20. First, as a matter of law, my starting point must be that the right to make such a set-off has been generally excluded, because anything else would be contrary to the 1996 Act and the underlying purpose of construction adjudication. It would, in my view, 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. It would allow the unsuccessful party a defence to the claim merely because the adjudicator gave that party time to pay the sum due, rather than ordering payment forthwith. That is, to say the least, counter-intuitive; it would mean that the unsuccessful party was taking undue advantage of the adjudicator's decision to allow them some time to pay. In reaching that general conclusion I am, I think, doing no more than echoing what Mantell LJ said in Ferson , what Jackson J said in Balfour Beatty , and what Ramsey J said in William Verry .

21. Secondly, reading the adjudicator's decision as a whole as I must, I am firmly of the view that the adjudicator was not giving some kind of declaratory relief as to how the payment mechanism under the sub-contract might operate. He was not providing a declaration as to what sum was payable under the contract mechanism. He was not identifying a sum which he intended to 'plug in' to the contract machinery. Instead, in my view, the adjudicator was deciding a one-off claim in a one-off way. His decision makes plain that he intended the sum of £167,531.05 to be paid by no later than 14 days after his decision, namely by 5 June. On a proper reading of that decision, the adjudicator did not intend that there was to be any set-off or cross-claim in respect of that award. He was, as I have said, merely giving Vertase time to pay.”

  1. Drawing all these threads together, I reach the following broad conclusions on the issues arising where a party seeks to set-off against or withhold from sums which an adjudicator has said are to be paid or are payable:

(a) The first exercise should be to interpret or construe what the adjudicator has decided. In that context, one can look at the dispute as it was referred to him or her. That can involve looking at the Notice of Adjudication, the Referral Notice, the Response and other "pleading" type documents. One can have regard to the underlying construction contract. Primarily, one needs to look at the decision itself.

(b) In looking at what the adjudicator decided, one can 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 need to be construed to include other findings which form an essential component of or basis for the decision (see Hyder ).

(c) The general position is that adjudicators’ decisions which direct that one or other party is to pay money are to be honoured and that no set-off or withholding against payment of that amount should be permitted.

(d) There are limited exceptions. If there is a specified contractual right to set-off which does not offend against the statutory requirement for immediate enforcement of an adjudicator’s decision, that is an exception albeit that it will be a relatively rare one. Where an adjudicator is simply declaring that an overall amount is due or is due for certification, rather than directing that a balance should actually be paid, it may well be that a legitimate set-off or withholding may be justified when that amount falls due for payment or certification in the future. (See Squibb ).

(e) Where otherwise it can be determined from the adjudicator’s decision that the adjudicator is permitting a further set-off to be made against the sum otherwise decided as payable, that may well be sufficient to allow the set-off to be made (see Balfour Beatty ).

Discussion

  1. If the exercise was simply to construe or interpret the adjudicator’s decision on the basis of the wording, I would be in no doubt at all that there would be no right of set-off or withholding. He directs that payment should be made by Mr and Mrs Stevens within 14 days. He has made it clear that he has allowed nothing for liquidated damages and that there should be no set-off albeit that Mr and Mrs Stevens were entitled to set-off the specific sums already allowed to them in the adjudicator’s calculations.

  2. The confusion arises because the adjudicator has 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". His provisional view in a footnote is in the nature of an obiter type of finding, albeit it might well have been sensible for Mr and Mrs Stevens to have regard to that; the footnote is clearly not part of the decision. However, in deferring this area of issue "to another day", the adjudicator fell into error. In my judgment, the issue of liquidated damages 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 put before him by Thameside. I can only understand why he was at the very least confused by Mr and Mrs Stevens’ own unequivocal (but probably wrong) assertion in their Response that in effect "the question of whether practical completion was achieved" fell outside his jurisdiction. However, what did not fall outside his jurisdiction was the question of whether there was any entitlement to liquidated damages which at the very least would have involved determining when Mr and Mrs Stevens went into possession or occupation of the various parts of the Works and whether there was any culpability on the part of Thameside in failing to complete by the extended date for completion in August 2011.

  3. However, Mr and Mrs Stevens through their experienced Counsel expressly disavow any jurisdictional challenge along the lines that a failure to fulfil his or her jurisdiction is at least sometimes sufficient to raise a proper jurisdictional challenge to the enforcement of a decision. I can understand why such a disavowal has been made because the reality is that Mr and Mrs Stevens actually paid out over half of what the adjudicator ordered and in that sense have accepted that he had jurisdiction.

  4. The nub of the argument put forward by Mr Bowling is that in effect the adjudicator was treating his decision as if it was an interim certificate or possibly a valuation and that therefore he must be taken to have envisaged that there could be a later set-off or withholding against his decision at least in relation to liquidated damages. It is true that at Paragraph 12, on "practical" grounds he is going to approach the valuation issue "on the basis that this is an application for a further interim certificate" but he goes on in the next sentence to say that he will bear in mind that the parties "mutually intend (or indeed wish) this to act as a Final Account". He later says that there is no final certificate because there has been neither a practical completion certificate nor a certificate of making good defects (Paragraph 17). I do not read any of this however as saying that the decision will be treated as if it was an interim certificate or valuation under the contract. This is not his decision and he is not treating it as an essential part of his decision.

  5. When one comes to Paragraph 30, one needs to look at that in the context of what he has decided upon earlier in his decision which is that there is a gross sum due to Thameside of £1,223,478, and that Mr and Mrs Stevens had paid £1,101,597.02 and had established £33,275’s worth of defective or outstanding works. He explains in Paragraph 30 that this results in the balance due to Thameside of £88,606.22 but he then goes on to explain that he is going to make "an order for immediate payment on grounds this decision is the equivalent of an interim certificate". He is actually explaining his reasons why he is ordering an immediate payment. It is absolutely clear that he is ordering an immediate payment but that he is not ordering any accrued interest because as he says "the payment mechanism [has] broken down".

  6. I am wholly satisfied that it would be absolutely wrong to construe or interpret this 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. The final words of the decision direct Mr and Mrs Stevens to pay Thameside the specified amount. He is an experienced construction law barrister, albeit that he now works for well-known solicitors. If he had expected such a set-off, he would have said so. I reach this latter view not on the basis of what I know about the adjudicator but upon a proper reading in context of the decision.

  7. Mr Bowling argues that in effect what the adjudicator was doing was deciding the value of an interim certificate and ordering it payable in 14 days in accordance with the contract machinery. That argument however is undermined by his finding that the payment mechanism had broken down. He did not direct that an interim certificate should be issued, although he approaches the valuation exercise by reference to there being an application for an interim certificate. He does not limit himself simply to declaring what the net sum outstanding was. To the contrary, he actually directs that payment of the sum is to be made. The reality is that he was directing payment to be made by the Stevens and payment of the specified sum should be made.

  8. This is not a case that falls into either of the main exceptions, namely an allowable contractual set-off which does not offend against the statutory requirements or a declaratory type of decision. There is no good reason to assume that the adjudicator meant anything other than that the specified sum would be paid within 14 days. Mr and Mrs Stevens are not left without a remedy: they could themselves proceed to adjudication or to a final dispute resolution in respect of the liquidated damages claim, although they would have to be the judge of whether it was sensible to do so.

Decision

There will be judgment for Thameside for £40,000 plus VAT plus interest in the sum of £328.76. I have already intimated to the parties immediately after the oral argument what my decision would be. I have also ruled that Mr and Mrs Stevens should pay Thameside’s costs at the summarily assessed sum of £11,000.