Squibb Group Limited v Vertase F.L.I. Limited [2012] EWHC 1958 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

For more information visit  http://www.cms-lawnow.com/adjudication

Judgment date: 10.07.2012

SUMMARY

An unsuccessful party to an adjudication will generally not be entitled to avoid the result of the adjudication by relying on a right to set-off any other claims. There are exceptions to this rule: (1) the right to set-off may be provided by the terms of the contract but such wording must be clear and must not offend the requirement for immediate enforcement of the adjudicator’s decision; (2) if the adjudicator’s decision is in the nature of a declaration as to the contractual payment machinery, rather than a one-off award, a respondent may be able to rely on the payment provisions of the contract to issue a withholding notice. In this case, the respondent was not entitled to set-off its claim for liquidated and ascertained damages against the adjudicator’s decision as it did not meet the requirements of any of the exceptions.

Technology and Construction Court, Mr Justice Coulson

BACKGROUND

Vertase F.L.I. Limited (“Vertase”) engaged Squibb Group Limited (“Squibb”) under a sub-contract, dated 20 September 2011, to undertake asbestos removal and demolition work at a site in Leamington Spa. The sub-contract provided for Squibb to submit monthly valuations and for Vertase to pay
Squibb on a monthly basis for work done.

Under the sub-contract, Squibb was liable for liquidated and ascertained damages (LADs) at a rate of £15,000 for each week of delay; and Vertase had a “right to deduct from any payments certified as due to the Sub-Contractor and/or otherwise recover the amount if [of] any bona fide contra accounts and/or claims which he, the Contractor, may have against the Sub-Contractor.” 

The sub-contract was silent on the issue of the final date for payment of the sums due following the monthly valuations and there were no specific terms dealing with when withholding notices were to be served. However, under the sub-contract, the Main Conditions of Contract (ICE Conditions of Contract Design and Construct, 2nd Edition with amendments) operated to fill any gaps. Under the Main Conditions, the final date for payment was 28 days from the date of valuation. Any withholding notice would have to be served within 27 days from the date of valuation.

The works were scheduled to finish on 27 January 2012 but were in fact not completed until 27 April 2012 and a dispute arose between the parties as to the responsibility for the delay.

Squibb issued an adjudication claim for an extension of time and loss and damage due to the delay. In response, Vertase raised a number of jurisdictional points and, in the alternative, argued that the majority of the delay was Squibb’s responsibility.

The Adjudicator issued his decision on 22 May 2012. He found that Squibb were entitled to a 6 week extension of time (until 9 March 2012) but that some other matters were Squibb’s own responsibility. He held that Squibb were entitled to the sum of £167,531.05 for the cost of the delay, to be paid within 14 days of the date of the decision. The Adjudicator also determined that Vertase had not issued a withholding notice for any cross-claim for LADs and accordingly had “no entitlement to take liquidated damages from any amount that I might decide is due to be paid to Squibb.”

On 1 June 2012, Vertase, who had not paid the sum ordered by the Adjudicator, issued a withholding notice for the sum of £290,025.72. That sum included £13,412.05 which was said to be an arithmetical error made by the Adjudicator in his decision. After the Adjudicator confirmed that there was no such error, Vertase issued an amended withholding notice for the sum of £276,613.67. This included a claim for £105,000 in liquidated damages for the unextended period of the sub-contract, approximately £171,000 for items of work that Vertase alleged Squibb had failed to carry out.

Squibb applied for summary judgment to have the Adjudicator’s decision enforced. Vertase resisted the claim on the basis that it was entitled to rely on its withholding notice.

ISSUE

The Court was asked to address the following question: 

  • Was Vertase entitled to set-off against the Adjudicator’s award. (i) its claim for LADs; (ii) its claim for other amounts?

DECISION

The Court held that:

  • Generally, an unsuccessful party to an adjudication cannot seek to avoid the result of the adjudication by relying on the right to set-off any other claims.
  • In certain situations, the terms of the contract may entitle the respondent to set-off against an adjudicator’s decision. However, such situations will be rare: clear words in the contract will be required and they must not offend the requirement for immediate enforcement of the adjudicator’s decision.
  • A respondent may be entitled to set-off against an adjudicator’s decision where the decision is in the nature of a declaration as to the proper operation of the contractual machinery, and the adjudicator identifies a sum which is to be paid in accordance with that machinery. In such a case, the respondent may then be able to issue a withholding notice in accordance with the relevant contractual provisions.
  • In the present case, the Adjudicator had indicated that the amount he awarded should be paid no later than 14 days after his decision and without deduction. Nothing in the sub-contract allowed for a deduction in such circumstances.
  • Vertase was not entitled to set-off its claim for LADs against the Adjudicator’s decision. The general exclusion of the right to set-off against an adjudicator’s decision applied and none of the possible exceptions to the rule applied. To find otherwise would have been contrary to the words of the Adjudicator’s decision and the wording of the contract.
  • A number of the items referred to in Vertase’s claim for other amounts had been considered by the Adjudicator in one way or another in giving his decision. Accordingly, it could not be argued that Squibb’s liability in respect of those matters arose logically or naturally from the Adjudicator’s decision. The arguments made in the withholding notice had not been advanced in the adjudication. These claims could be the subject of a separate adjudication but they should not prevent payment of the amount owing to Squibb.
  • Summary judgment was given for Squibb in the full amount claimed.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit  http://www.cms-lawnow.com/adjudication

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