A party has no right to set-off claims not dealt with by the Adjudicator as a defence to the enforcement of the Adjudicator's decision, but can set-off where a compliant withholding notice has been served and the claim was dealt with by the Adjudicator.
His Honour Judge Wilcox, Technology and Construction Court
26 June 2002
The Claimant ('LAT') agreed to supply and fit brise soleil and louver panelling for the Defendant ('FC'). The sub-contract incorporated GC/Works/Sub-contract conditions with amendments.
The following order of events occurred:
- LAT applied for an interim payment. FC agreed to pay only part and with regard to the balance served a withholding notice;
- FC purported to determine the sub-contract on the ground that LAT had wrongfully suspended work;
- LAT referred the interim payment dispute to adjudication;
- The Adjudicator decided that FC's withholding notice was invalid and awarded LAT a sum of money.
LAT applied for summary judgment to enforce the Adjudicator's decision. FC opposed the application primarily on the ground that clause 29.8 of the sub-contract provided that on determination all sums of money that may then be due or accruing due from [FC] to [LAT] shall cease to be due, or accrue to be due.
LAT said that a necessary implication of the Adjudicator's decision was that LAT was entitled to suspend the works (for non-payment of money due under the sub-contract) and the purported determination based on LAT's wrongful suspension of the works had no contractual effect.
The Judge agreed with LAT. He also said that clause 29.8 did not apply to money due under a valid Adjudicator's decision, reached within his jurisdiction. The money due did not accrue in the sense contemplated by clause 29.8. FC appealed unsuccessfully against this part of the Judge's decision (see page 122).
As an alternative defence, FC said it was entitled to set-off and counterclaim against the Adjudicator's decision the amount withheld against the interim payment and damages for the cost of completing the works.
The Judge also rejected this defence saying: A party has no right to set-off claims not dealt with by the Adjudicator as a defence to the enforcement of the Adjudicator's decision. However, the Judge said a contract governed by the HGCR Act 1996 could provide for a claim to be set-off against an Adjudicator's decision when the claim is subject to a compliant withholding notice and the Adjudicator has 'dealt with' the claim (and, presumably, not decided it against the withholding party). In this case, no valid withholding notice had been served in respect of the sum withheld against the interim payment and no notice at all had been given for the cost of completing the works. This part of the decision was not appealed and remains of interest pending higher authority directly on point.
A party has no right to set-off claims not dealt with by the Adjudicator as a defence to the enforcement of the Adjudicator's decision, but can set-off where a compliant withholding notice has been served and the claim was dealt with by the Adjudicator.
For more information please contact Victoria Peckett via email at victoria.peckett@cms-cmck.com.
