| Date | 1 May 2002 |
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| Judgment | Parsons Plastics (Research and Development) Ltd -v- Purac Ltd, CA 12 April 2002 |
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| The Issue | Whether a counterclaim and set-off can be raised against an adjudicator's decision. |
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| Implication |
Subject to the terms of the contract, it may be open to the paying party to set-off against the adjudicator's decision any other claim which has not been determined by the adjudicator. |
printUntil very recently I held to the view that the payment and adjudication provisions of the Construction Act were working very effectively and that no adjustment was needed. Recent decisions of the courts may require that view to be reconsidered. In particular, the recent Court of Appeal decision in the case of Parsons Plastics (Research and Development) Ltd -v- Purac Ltd may prove to be a crucial turning point in the development of the adjudication process. A number of early cases answered the question as to whether a withholding notice was required if the paying party intended to withhold monies against sums otherwise due under a construction contract. The message was relatively clear. If the paying party intended to make a counterclaim and use that counterclaim to set-off against monies otherwise due, a withholding notice was required. A related question was whether it would be possible to raise a counterclaim and apply this as a set-off against an adjudicator's decision ordering payment of an amount due. In a sense, there are two parts to this question. Firstly, can a set-off ever be raised against monies ordered to be paid by an adjudicator, since an adjudicator's decision is to be binding between the parties? Secondly, if the set-off is to be made, must a withholding notice be served? These issues were first examined 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 imposed a fresh obligation to comply with that decision. Thus the money ordered to be paid by an adjudicator was not payable under the contract, in the sense of the strict compliance with the payment provisions of the contract, but by way of compliance with the adjudicator's decision. The consequence, in Judge Hicks' view, was that to "comply" simply meant to comply without recourse to defences or cross claims not raised in the adjudication. An alternative view was expressed by His Honour Judge Lloyd QC in the case of David MacLean Housing Contractors -v- Swansea Housing Association in July 2001. Judge Lloyd did not agree that the adjudicator's decision itself created a debt independent of the terms of the underlying contract. Judge Lloyd held that Swansea Housing Association was entitled to raise a counterclaim by way of a set-off against the monies ordered to be paid by the adjudicator. He also held that Swansea had given an effective notice to withhold liquidated damages immediately following receipt of the adjudicator's decision. As a consequence the contractor failed in its attempt to enforce the adjudicator's decision. In the more recent case involving Parsons Plastic, the Court of Appeal has given support to this latter approach. Parsons were engaged as sub-contractors to Purac in connection with the design and construction of a sewage treatment works at Lowestoft. Disputes arose between the parties concerning both progress and payment. These were not resolved and eventually Purac ejected Parsons from the site and gave notice that it would engage others to complete the sub-contract works. An adjudicator was appointed and in due course he held substantially in favour of the sub-contractor, Parsons. Some six days after receipt of the adjudicator's decision and before any money had been paid in respect of that decision, Purac served a notice of intention to withhold payment. Purac claimed that the cost to complete the works of some £300,000 was a larger amount than had been awarded by the adjudicator and thus Parsons was not entitled to any payment. The matter proceeded to court. The Court of Appeal agreed with the trial judge that Purac was entitled to resist payment of the sum ordered by the adjudicator, taking into consideration its counterclaim and set-off. The saving grace here is that the counterclaim for the cost of completing the works will itself be capable of being referred to adjudication and thus a decision may be obtained within a matter of weeks. Prior to the HGCRA, such unliquidated claims for damages would potentially have taken longer than eighteen months to resolve in arbitration or litigation. But does this signal a charter for a withholding notice to be raised against adjudicator's decisions wherever there is the slightest prospect of a counterclaim? Perhaps not. This was a sub-contract which was not caught by the HGCRA, but the parties had nevertheless created their own payment and adjudication provisions largely to reflect the Act. The sub-contract between Purac and Parsons contained a clause which expressly preserved Purac's common law rights of set-off and made the payment and withholding notice requirements subordinate to those rights. Crucially, by reference to this clause, not only was it open to the main contractor Purac to set-off against the adjudicator's decision, but such a set-off was not constrained by the need to raise a withholding notice. Whether such a clause would be compliant with the requirements of the HGCRA will no doubt be decided on some future occasion.
CJ-0217
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