No great Sheiks

A case in the High Court provides an interesting angle on the obedience owed by parties to an adjudicator's decision. Let's hope they appreciate it in Qatar …

"If a party thinks it is entitled to deduct damages, it can deduct them from future sums due but not from a valuation that was the subject of an adjudication"

I am obliged to John Wright of solicitor Berwin Leighton Paisner for drawing my attention to the adjudication judgment in the High Court called Solland International vs Daraydan Holdings (case no. 92 in our series). It was an attempt by Daraydan to torpedo an adjudicator's decision to order the employer to pay Solland, the builder, a whopping £659,000. Daraydan, which acts as an intermediary for Sheikh Mohammed Khalifa Hamad Al-Thane, the deputy prime minister of Qatar, said "shan't obey". Solland took Daraydan to court. I will tell you the end of the story now. Daraydan was ordered to pay up. It is, of course, quite ordinary for the court to insist on obedience to the adjudicator's decision.

But there is an interesting angle to this case. A few weeks ago (1 February), I told you that it wouldn't be very long before the argument used in David McLean Housing Contractors vs Swansea Housing Association would be run out again.

It was just so in this Solland case. The argument worked in McLean; it flopped in Solland. In McLean, the adjudicator told Swansea to pay up £613,000. It only paid £420,000, saying it had a claim for liquidated damages for the balance and could set off. The judge in Solland said that although he agreed with the judge in McLean, he would not allow liquidated damages to be set against the adjudicator's award. How come?

First, Daraydan had no quarrel with adjudicator Dominic Helps' decision. His decision on the sum due was the same as the architect's certificate. What the Sheikh's intermediary company was trying to do was persuade the court that it could withhold 54 weeks' damages at £15,000 per week. It looked at what happened in McLean and said to the judge in Solland "follow that". He wouldn't.

Let's see if we can fathom the difference. In Solland the adjudicator had to decide whether he agreed with the valuation in interim no. 59 and with the architect's certificate for sums due. So the adjudication here was all about the value of work done, just like an ordinary valuation.

In their contract, parties agree to abide by, or comply with, the decision of the adjudicator. There is no question of using some device such as a withholding notice to contradict the express promise to comply. If in Solland the employer thinks it is entitled to liquidated damages, it can deduct them from future sums due but not from valuation no. 59. That valuation was the subject of the adjudication and shall be paid. And if the employer by now has nothing to deduct from, it is open to it to call for an adjudicator to make another decision. If it succeeds in showing liquidated damages are payable, it is due a cheque from Solland. Easy, isn't it?

The Swansea affair was a dispute about the final account and extension of time and loss and expense due to the builder. Do you see the immediate difference to Solland? It wasn't a mere valuation. The adjudicator in McLean did his stuff on the amount of extension of time. Once decided, that extension was binding. Aha, said the employer. Since we now have a binding decision on the extended date and since the builder reached practical completion on a later date, we can now calculate the liquidated damages. And it jolly well did. It came to £130,000. And now comes the crucial question: can Swansea HA deduct that from the adjudicator's order to pay the amount due in his decision? The answer is, yes. The reason is twofold. First, the adjudicator had of course decided the date when Swansea's builder ought to have been completed. That was binding. He did not decide, nor was he asked, if that meant Swansea could deduct liquidated damages. Instead, and this is the second reason, Swansea began an action in the High Court for payment of the £130,000 liquidated damages. Swansea got summary judgment on the same day as David McLean was seeking to enforce the adjudicator's decision for the full amount. It used the adjudicator's decision to confirm late completion.

So, if I have figured all this out, we can still say that the parties have agreed when carrying out construction contracts that they will obey an adjudicator's decision. No set-off is allowed. But nothing stops a party from bringing an action in court, which uses the adjudicator's decision, on the same day as enforcement is sought to prove a breach has occurred. Of course, you have to come with an open-and-shut case. The Sheikh's company didn't have such a case. It had to pay up without deduction.

Readers are invited to forward recent judgments for reporting in this column (with full acknowledgement) to: Tony Bingham, 3 Paper Buildings, Temple, London EC4Y 7EU. DX:007I LDE

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