| Date | 16 January 2002 |
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| Judgment | David McLean Housing Contractors Limited -v- Swansea Housing Association Limited, TCC 27 July 2001 |
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| The Issue | Whether a set off can be raised to defeat the enforcement of an adjudicator's decision.Whether a set off can be raised to defeat the enforcement of an adjudicator's decision. |
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| Implication |
An adjudicator's decision may be regarded as no more than a decision about the rights and liabilities accruing from the underlying contract, thus a valid contractual set off may be used to resist enforcement of the adjudicator's decision. |
printWhat is the legal effect of an adjudicator's decision? It might be thought by now that such a question would be easily answered. Unfortunately, as lawyers are often keen to say, it is not as simple as that. One school of thought is that an adjudicator's decision establishes a separate, or freestanding, obligation upon the parties to comply with the terms of the decision. This was the approach followed by His Honour Judge Hicks in the case of VHE Construction -v- RBSTB Trust Company in January 2000. According to Judge Hicks, parliament had made it clear that the decisions of adjudicators were binding and were to be complied with until the dispute was finally resolved. Accordingly, an adjudicator's decision for the payment of money does not leave the contractual machinery for payment to operate undisturbed, but instead imposes a fresh obligation to comply with the adjudicator's decision. Questioning whether the employer had the right to set-off liquidated damages from the sum ordered to be paid by the adjudicator, Judge Hicks said: "In the first place, the right under clause 24.2.1 is to deduct (liquidated damages) from monies due or to become due 'under the contract'. The money in question here was not payable under the contract in the sense contemplated by that clause, but by way of compliance (albeit contractually required) with the adjudicator's decision." The significance of this approach lies in whether a set-off or cross claim can be raised by the "losing" party to resist making payment in accordance with an adjudicator's decision. In Judge Hicks' view, to "comply" simply meant to comply without recourse to defences or cross-claims not raised in the adjudication. Under a standard JCT Form, an employer has a residual right to set off liquidated damages for delay against monies otherwise due under the contract. In VHE, Judge Hicks held that there was no such right against an adjudicator's decision. The consequence of this approach is that where a party has failed to raise at the proper time its notice of intention to withhold payment under Section 111 of the Act, that failure cannot be rectified by raising the issue of withholding for the first time in its response in the adjudication, or by way of a defence to enforcement of the adjudicator's decision. An alternative view was expressed by His Honour Judge Lloyd QC, in the case of David McLean Housing Contractors -v- Swansea Housing Association in July of last year. Judge Lloyd did not agree that the adjudicator's decision itself created a debt independent of the terms of the underlying contract. In his opinion the adjudicator's decision is about the rights and liabilities arising under, or in connection with, the underlying contract. The Act or the Scheme do not confer on an adjudicator a right to adapt or otherwise modify a contract, except perhaps in respect of the time within which payment is to be made. (Under the Scheme, the adjudicator is permitted to order a time for payment, which may differ from the contractual arrangements.) That distinction apart, an action to enforce an adjudicator's decision is merely an action to enforce the contractual rights or liabilities which have been upheld by the adjudicator. This different approach brings a different conclusion to the question of whether a set-off can be raised after an adjudication to resist payment of the adjudicator's decision. David McLean were main contractors under a JCT 81 Design & Build form of contract for the redevelopment of the former head post office in Swansea to provide housing and commercial and other property for Swansea Housing Association. Disputes arose concerning the amounts payable under an interim payment and these were referred to adjudication. As a component of determining the amount due, the adjudicator was also required to determine David McLean's entitlement to extensions of time. The adjudicator issued his decision ordering monies to be paid to David McLean. Swansea Housing Association recognised that, inherent within that decision, was a decision on extension of time, which fell rather short of the date of practical completion. Wasting no time, Swansea wrote to David McLean advising that liquidated and ascertained damages would be deducted from the payment due in accordance with the adjudicator's decision. David McLean pressed for enforcement of the adjudicator's decision in full. Judge Lloyd held that Swansea Housing Association had reasonable prospects of success in maintaining that it had given an effective notice to withhold liquidated damages immediately following receipt of the adjudicator's decision. Swansea Housing Association were therefore entitled to summary judgment dismissing David McLean's claim for enforcement of the adjudicator's decision. In consequence, Swansea Housing Association were entitled to safely keep the liquidated damages.
CJ-0202
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