| Date | 21 May 2008 |
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| Judgment | Avoncroft Construction Limited v Sharba Homes (CN) Limited, TCC, 29 April 2008 |
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| The Issue | The withholding of liquidated damages from a sum directed to be paid by an adjudicator. |
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| Implication | A valid adjudicator’s decision must usually be complied with. Unless a decision effectively determines the entitlement to liquidated damages, or the contract provides for set off against an adjudicator’s decision, there is unlikely to be any entitlement to withhold liquidated damages from a sum directed to be paid by an adjudicator. |
print| In most circumstances a valid adjudicator’s decision must be complied with. The Courts will generally not allow attempts to frustrate the 1996 Act. One way in which an employer might attempt to avoid paying a sum awarded by an adjudicator is to raise a set off, often in respect of liquidated damages. Unless the adjudicator effectively determines the question of liquidated damages as part of the decision the courts have, except in special circumstances, generally rejected attempts to withhold further sums from the amount directed to be paid by the adjudicator. Where a decision merely provides guidance and then requires a certificate to be issued to give effect to the decision, then it seems that the normal payment provisions can be applied to the new certificate. A withholding notice can then be issued in the normal way. It was in such circumstances that the courts allowed a withholding to be made against an adjudicator’s decision in David McLean Housing v Swansea Housing Association (2002) The case of Balfour Beatty Construction v Serco (2004) considered an employer’s attempt to claim liquidated damages to avoid paying a sum awarded by an adjudicator. From the authorities he reviewed Jackson J set out two principles of law, as follows: a. Where it follows logically from an adjudicator's decision that the employer is entitled to recover a specific sum by way of liquidated and ascertained damages, then the employer may set off that sum against monies payable to the contractor pursuant to the adjudicator's decision, provided that the employer has given proper notice (insofar as required). b. Where the entitlement to liquidated and ascertained damages has not been determined either expressly or impliedly by the adjudicator's decision, then the question whether the employer is entitled to set off liquidated and ascertained damages against sums awarded by the adjudicator will depend upon the terms of the contract and the circumstances of the case. In this case the Judge found that Serco was not entitled to withhold liquidated damages on the basis that the adjudicator had not reached any definitive conclusion as to the total extension of time which was due to Balfour Beatty, and no specific entitlement to liquidated and ascertained damages followed logically from the adjudicator’s decision. In his book “Construction Adjudication” HHJ Peter Coulson QC suggests that a third principle applies, namely that if the terms of the contract as to set-off are to override the effect of the adjudicator’s decision, and deprive the successful party in the adjudication of the sum otherwise due pursuant to the adjudicator’s decision, then the terms of the contract must clearly provide for such an outcome. The latest case to address this issue is Avoncroft Construction v Sharba Homes (2008) in which HHJ Frances Kirkham also rejected a cross-claim for liquidated damages made against an adjudicator’s decision. The contract under which a dispute arose was JCT 98 Without Quantities and, in a decision dated 14 February 2008, the adjudicator decided that the sum of £56,380 was to be paid by 21 February 2008. The judge reviewed the two principles of law identified by Jackson J and concluded in relation to (a) that the adjudicator did not decide the question of entitlement to liquidated damages, but he had decided whether the claimant was entitled to an extension of time for completion. No claim was made within the adjudication for payment of liquidated damages. As regards (b), she concluded that Clause 41A.7.2 is clear; the parties are obliged to comply with the decision of an adjudicator, and that there is no reference to any right of set off against such decision. Although obiter the Judge also concluded that the payment provisions did not apply to the sum awarded by the adjudicator because it did not relate to a sum due under a payment certificate. It was nevertheless a sum due under the contract. The Scheme therefore provided the timescale for the issue of a withholding notice of not later than 7 days prior to the final date for payment. The notice was issued 6 days before and was therefore invalid.
CJ-0820
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