Beck Interiors Ltd v Classic Decorative Finishing Ltd [2012] EWHC 1956 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

summary

A losing party in adjudication will not be permitted to set-off against the award sums allegedly due to it from the winning party, unless: there is an express provision for such a set-off in the contract; or the adjudicator did not order immediate payment but instead gave a declaration as to the proper operation of the contract or ordered that the sum due should be paid but only as part of and pursuant to the existing contract machinery. In this case, there could not in any event be a set-off since, applying the rules of equitable set-off, the cross-claim was not sufficiently closely connected to the claim for the enforcement of the award.

Technology and Construction Court, Mr Justice Coulson

Background

In February 2011 Beck Interiors Limited (“Beck”) entered into a sub-contract to engage Classic Decorative Finishing Limited (“CDF”) for internal and external decoration works at 1 Cambridge Gate, London.

Disputes arose between the parties and Beck referred its claim against CDF to adjudication. On 11 May 2012 the Adjudicator provided a written decision that Beck was entitled to £43,081.74. This sum was not paid by CDF.

CDF did not contest the Adjudicator’s jurisdiction, nor did it raise a challenge on any ground of natural justice. Instead CDF stated that it had a defence against the claim because Beck owed €59,156.23 to CDF for work at Danesmoate House, Dublin. CDF argued that it could set-off this alleged debt against the Adjudicator’s award.

Issue

The Court was asked to address:

  • Whether CDF could set-off against the award sums due from Beck under the Irish contract.

DecisioN

The Court held that:

  • It is rare for the courts to permit the losing party in adjudication to set-off some other claim against the sum awarded. Parliament’s will was that adjudication awards be paid “without further ado” and that the courts enforce them in all usual circumstances.
  • The two possible exceptions to this principle arise: where there is a provision for such a set-off in the relevant contract; and/or where the adjudicator does not order immediate payment, but instead gives a declaration as to the proper operation of the contract or orders that the sum due should be paid but only as part of and pursuant to the existing contract machinery. Neither exception applied to this case.
  • Aside from the requirements of the adjudication enforcement regime, CDF’s defence could not succeed. As there was no set-off provision in the contract, CDF had to rely upon its equitable right to set-off. This requires that the cross-claim be “so closely connected with the claim that it would be manifestly unjust to allow the claim without taking into account the cross-claim”. This could apply to claims under the same transaction, or with the same or strongly linked subject-matter. In this case, where the transactions were different, concerning separate works, in different countries (and jurisdictions), and in different currencies, the cross-claim was so distinct from the original claim that “equity could not possibly require the court” to take CDF’s cross-claim into account when addressing Beck’s claim for summary judgment on the Adjudicator’s award.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

 

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