| Date | 6 March 2002 |
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| Judgment | Solland International Limited -v- Daraydan Holdings Limited, TCC 15 February 2002 |
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| The Issue | Whether a set off or cross claim can be raised to defeat the enforcement of an adjudicator's decision. |
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| Implication |
Adjudicator's decisions will normally be enforced directly upon their own terms, without regard to the merits of concurrent claims or counterclaims between the parties not raised in the adjudication. |
printIn a number of cases concerning the enforcement of an adjudicator's decision, the central argument has been whether the party resisting enforcement should be able to justify non-payment by raising separate disputes or counterclaims, which were not put before the adjudicator. The courts have generally approached this by reference to the requirement for the withholding notice under Section 111 of the Act. Where a withholding notice has properly been served, then the counterclaim will normally be considered by the adjudicator. Thus the decision of the adjudicator will determine the monies due from one party to the other after having taken into account both the claims and counterclaims of each party. Where however a withholding notice has not been served relative to the amount in dispute, the adjudicator may not take into account the responding party's counterclaims. Moreover, such counterclaims may not be raised to resist enforcement of the sum awarded by the adjudicator. Pausing there for a moment, this all seems perfectly simple. If a dispute referred to an adjudicator concerns only the amount due under the contract, and the paying party has given no notice of intention to make a withholding against the amount due, then the sum awarded by the adjudicator (in effect the adjudicator's decision on the amount due under the contract) will be enforceable, regardless of the merits of any counterclaims which the paying party may later seek to raise. Against this background, it was something of a surprise to read the decision of His Honour Judge Humphrey Lloyd QC in July of last year in the case of David McLean Housing Contractors -v- Swansea Housing Association, where it would appear Judge Lloyd applied a different analysis. Judge Lloyd did not accept that an adjudicator's decision itself created a debt independent of the terms of the underlying contract. In his opinion, the adjudicator's decision was about the rights and liabilities arising under or in connection with the underlying contract. This meant, according to Judge Lloyd, that where a paying party had raised a withholding notice after the date of an adjudicator's decision, but before its enforcement, the existence of that withholding notice was to be taken into account in considering whether the adjudicator's decision should be enforced. In so doing, Judge Lloyd refused to grant summary judgment for the enforcement of the adjudicator's decision. Many practitioners might reasonably have thought that this decision gave licence for a new approach. Assuming that you have been clearly beaten in an adjudication and ordered to pay a substantial sum of money to the other party, if the David McLean line of authority is correct, the next step would be to scramble together a counterclaim and urgently issue a withholding notice in respect of the monies now due (by virtue of the adjudicator's decision). You should then wait in the hope that when the matter comes to court for enforcement, the judge will accept that your 'new' withholding represents a valid reason to refuse enforcement. The case of Solland International -v- Daraydan Holdings heard in the Technology and Construction Court on 15 February 2002 will perhaps temper those ideas. Daraydan had been ordered by an adjudicator to pay Solland a sum of approximately £650,000. Daraydan refused to pay and the matter proceeded to enforcement. Daraydan argued that the adjudication had dealt with only one of a number of disputes between the parties. Other disputes which had not been put before the adjudicator included a claim for liquidated and ascertained damages in the sum of £810,000 and a claim for allegedly defective work totalling some £170,000. If valid, these claims would extinguish the amount ordered to be paid by the adjudicator. Relying in particular on the David McLean case, Daraydan argued that at the enforcement stage, it was open to the court to consider defences in the nature of a set-off or abatement notwithstanding that these had not been raised in a notice of intention to withhold payment capable of being considered in the earlier adjudication. His Honour Judge Richard Seymour QC rejected this proposition. In his opinion, David McLean's decision was not authority for raising separate counterclaims after an adjudicator's decision, to resist enforcement of that decision. In David McLean, the adjudicator had held, in the course of his decision as to how much money was due to the contractor, that the contractor was entitled to a certain extension of time. By deciding in this manner, the adjudicator had therefore opened the door for the employer to make a fresh counterclaim for liquidated and ascertained damages. The raising of a withholding notice in respect of those liquidated damages was therefore a valid step which flowed from the decision of the adjudicator. Daraydan by contrast, could not rely upon any element of the adjudicator's decision as the justification for its counterclaims. The Act and Scheme plainly intended that any decision of an adjudicator should be binding, and that the parties should accept the adjudicator's decision and give effect to it, without recourse to defences or cross claims not raised in the adjudication. Any other interpretation would mean that adjudication was simply for fun and could not be for profit. Judge Seymour commented that that would be manifestly absurd.
CJ-0209
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