| Date | 10 January 2007 |
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| Judgment | R J Knapman Ltd v Richards and others, TCC, 12 October 2006 |
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| The Issue | Whether an employer may resist enforcement of an adjudicator’s decision by applying a later set off in respect of liquidated and ascertained damages. |
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| Implication |
Unless it logically follows from the adjudicator’s decision that the employer is entitled to recover a specific sum by way of liquidated and ascertained damages, the contractor will normally be entitled to enforcement of the adjudicator’s decision for the full amount of monies payable. |
printWhen an adjudicator orders that a sum of money should be paid by one party to another, the paying party will wish to consider any options open to it to avoid making payment. One option which may be available is to make a deduction, or set off, of monies which the paying party considers are due to it from the other party, either separately or as an indirect consequence of the adjudication. There have been a number of cases in which the question of a set off against an adjudicator’s decision has been considered. In January 2000, in the case of VHE Construction v RBSTB Trust Company, the Court held that the adjudicator’s decision was enforceable on its own terms and that a set off raised after the date of the referral could not prevent enforcement of the adjudicator’s decision in full. This was the case even where the set off had been raised before payment in respect of the adjudicator’s decision had become due. This approach is based on the assumption that an adjudicator’s decision establishes a separate, freestanding obligation upon the parties to comply with the terms of that decision. An alternative view was given in the case of David Maclean Housing Contractors v Swansea Housing Association in July 2001. In this case, the judge expressed the view that adjudicators’ decisions primarily concern the parties’ rights and liabilities arising under, or in connection with, the construction contract. That being the case, the question of whether or not a party should comply with an adjudicator’s decision may depend upon other terms of the contract. The adjudicator had ordered monies to be paid to the contractor and made a decision on extension of time which fell short of the date of practical completion. Immediately upon receipt of the adjudicator’s decision, the employer wrote to the contractor advising that, having regard to the adjudicator’s decision on extension of time, liquidated and ascertained damages would be deducted from the payment due. The court held that this was an effective notice to withhold under the terms of the contract and the employer therefore succeeded in resisting the claim for enforcement of the adjudicator’s decision. In 2003, the Court of Appeal had a look at this question in the case of Ferson Contractors v Levolux. The Court of Appeal made it clear that it preferred the approach in the VHE case. It was held that where a conflict arose between the obligation to pay the amount stated in an adjudicator’s decision and the contractual terms between the parties, the obligation to pay in accordance with the adjudicator’s decision must take precedence. “The contract must be construed as to give effect to the intention of Parliament rather than to defeat it”. That decision stands as fairly clear guidance that where an adjudicator orders that a sum of money should be paid, that sum of money will require to be paid with no right of the paying party to raise a separate cross claim or set off after the date of the adjudicator’s decision. As so often seems to be the case however, an exception to this general rule was found in the 2004 case of Balfour Beatty Construction v Serco. Once again in this case, the adjudicator had ordered a payment of a sum of money to the contractor and had also made a decision in respect of the contractor’s entitlement to extensions of time. Drawing inferences from that decision, the employer had calculated that a sum of liquidated and ascertained damages remained payable and that this amount should be applied by way of set off against the monies payable to the contractor. The court concluded that the employer could make such a set off against the sum awarded by the adjudicator provided that the liquidated and ascertained damages followed logically from the adjudicator’s decision. Justice Jackson said: “I derive two principles of law from the authorities which are relevant for present purposes: These issues were once again considered in the recent case of R J Knapman v Richards, where His Honour Judge Peter Colson QC carefully followed the decisions in Ferson and Balfour Beatty. He held that the adjudicator, on the facts, had not dealt with the entirety of the issues relating to extension of time and therefore it could not be said that liquidated and ascertained damages were payable as a logical consequence of the adjudicator’s decision. Moreover, the adjudicator had not been asked to consider the question of whether or not a certificate of non completion had been issued, and such a certificate could not be inferred from his decision. It followed that the contractor was entitled to obtain enforcement of the adjudicator’s decision for the payment of the full amount due without set off in respect of liquidated damages calculated by the employer.
CJ-0701
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