Adjudicators` Decisions and the Right to Set-Off

"He owes me money so why can`t I set that off against the sum awarded by the Adjudicator?"

For many, it seems only fair that if someone owes them money, they should be able to deduct this sum from any money which may be payable following an Adjudicator`s decision. The Court`s do not share this view. Two recent Decisions of Mr Justice Coulson sitting in the Technology & Construction Court have provided a useful reminder of the principles governing set-off against an Adjudicator`s Decision. 

The two cases are Squibb Group Limited v Vertase FLI Limited and Beck Interiors Limited v Classic Decorative Finishing Limited. In both cases, the Defendants had resisted enforcement of the Adjudicators` decisions, refusing to pay to their opponents the sums awarded. In the case of Squibb, following the Adjudicator`s decision, Vertase had issued a Withholding Notice in respect of liquidated and ascertained damages and various other items relating to Squibb's alleged failure to carry out certain works. They argued that they should be entitled to set-off the sums due in the withholding notice from the amount awarded by the Adjudicator. Similarly, in Beck Interiors, Classic Decorative Furnishing claimed that Beck Interiors owed it a sum of money under a final account relating to work it had carried out on a separate project and that it should be able to set this sum off against the sum awarded by the Adjudicator. In hearing both applications, Mr Justice Coulson found in favour of the Claimants and ordered the Defendants to pay the sums awarded by the Adjudicator without any set-off. 

In his Judgement, Mr Justice Coulson emphasised the Court`s approach in relation to set-off and the general principle that a set-off in respect of an Adjudicator`s Decision will rarely be allowed and would be contrary to the underlying purpose of construction adjudication and the Housing Grants Construction and Regeneration Act 1996. Two exceptions to this general principle were highlighted, although it was noted that these did not apply in the cases being considered. These are:

1. where the contract specifically allows a paying party to set-off against an Adjudicator`s Decision by, for example, serving a Withholding Notice; and

2. where the Adjudicator 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. 

These cases highlight that except in limited circumstances, a party will not be able to avoid payment following an Adjudicator`s award by arguing that they are owed money by the other side. Whilst some people may regard this approach as unfair, the answer is to consider your own contract and see what other options are available to recover the sums due. If money is properly due, the contract will hopefully provide a mechanism to recover this. 

Posted on: 25/09/2012

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.

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