Geris v CNIM [2005] EWHC 499

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This case concerned the interpretation of an adjudicator's decision. On the facts, the court held that the adjudicator both decided that sums were due to the referring party but also that the respondent had an entitlement to set off against those sums. As the respondent therefore had a realistic prospect of successfully maintaining its defence to the enforcement proceedings, namely that the decision should not be read as giving rise to an immediate right to payment, the application to enforce the decision was dismissed. Further, although it was not a part of his reasoning, the judge remarked that the courts should only allow a defendant to rely upon an equitable set off to postpone or defeat an adjudicator's decision in the rarest and most exceptional of circumstances.

Technology & Construction Court, London

His Honour Judge Humphrey LLoyd QC

Les Construction Industrielles de La Mediterrannee S.A. (CNIM) was the main contractor for the design and construction of a new waste incineration plant at Marchwood near Southampton. Geris Handelsgesellschaft GmbH (Geris) was appointed as subcontractor. The subcontract was in the standard form of the Institution of Chemical Engineers, Model Form for Process Plant (the Brown Book). However, the subcontract contained special provisions relating to adjudication which replaced those in the Brown Book. The parties agreed that the subcontract met the requirements of section 108 of the Housing Grants, Construction and Regeneration Act 1996.

Disputes arose between the parties and on 15 July 2004 (before Geris had completed all of its work) CNIM terminated the subcontract on the basis that Geris had failed to proceed regularly and diligently with the subcontract works. On 12 November 2004 Geris gave notice of its intention to refer the disputes to adjudication. CNIM sought to advance a counterclaim for liquidated damages for Geris' delay and additional costs relating to the completion of Geris' work.

The adjudicator issued his decision. Although the bespoke adjudication provisions did not require the adjudicator to give reasons for his decision (nor was he asked to give his reasons by the parties), he did include some of his reasons in his decision. He said that this was to assist the parties with attempting to resolve the remaining matters in disputes.  He made decisions on certain of the matters referred to him. The adjudicator concluded that both parties were partially to blame for the delays on the project. He therefore decided that Geris was entitled to payment of certain invoiced sums and to a proportion of its prolongation costs and CNIM was entitled to a proportion of the liquidated damages that it had counterclaimed. The adjudicator also decided that CNIM's termination of the subcontract was lawful and that CNIM was entitled to exercise its contractual right to set off.

However, the adjudicator refused to consider other claims by the parties, e.g. Geris' loss and expense claim and CNIM's claim for the costs of completing the works, on the basis that the dispute had not crystallised by the time of the notice of intention and he said that he therefore lacked the requisite jurisdiction to include them as part of his decision.

Although the adjudicator made certain specific decisions in relation to the payment of his fees, he did not include with his decision a summary of his consideration of the parties' claims and counterclaims. Significantly, he did not express them as a sum owing from one party to the other.

CNIM refused to comply with the adjudicator's decision. It said that whatever the adjudicator was asked to decide, he did not decide that any amount had now to be paid by CNIM to Geris. CNIM's position was that the adjudicator had decided only amounts that might be payable subject to CNIM's rights of set off which he upheld but which he was unable to and did not quantify. Geris did not accept this and applied for summary judgment to enforce the adjudicator's decision.

In considering whether to enforce the adjudicator's decision, the judge focused on the question of 'what did this adjudicator decide?'. The judge said that the courts should adopt a practical approach when considering applications to enforce adjudicators' decisions. If a defendant resists an application it must do so, the judge said, on the basis that it has reasonable (and not fanciful) prospects in sustaining its defence.

The judge said that in this case it was clear on reading the decision in its entirety that the adjudicator had decided that CNIM had an immediate right to set off the amounts that it claimed against any amount that would have otherwise been due to Geris. He reached this decision having considered the clear words used by the adjudicator in his answer to the issue of whether CNIM was entitled to exercise its set off and also by the absence of any conclusion as to what amount was now payable by CNIM to Geris. The judge therefore held that CNIM had a realistic prospect of successfully sustaining its defence that the decision did not give rise to any immediate right to payment. Accordingly, Geris' application to enforce the adjudicator's decision was dismissed.

Although because he concluded that CNIM had a contractual right to set off, the judge did not to consider whether in the circumstances there could be a right to equitable set off, he did say that in the context of an adjudicator's decision the court's discretion to allow an equitable set off should only be exercised in 'the rarest and most exceptional circumstances.' The judge said that ordinarily to allow a defendant to rely upon an equitable set off to postpone or defeat enforcement of an adjudicator's decision would be counter to the public policy as set out by the Construction Act.

This summary was provided by CMS Cameron McKenna LLP.

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