Fog warning

If an adjudicator decides against you and orders you to cough up, you may not have to – if you can steer your way through a murky set of exceptions.

"The courts have repeatedly held that no deduction or withholding will ordinarily be allowed. Oh dear, watch out for that word ‘ordinarily’ …"

Here is a very recent adjudication case.

It is number 122 in our series of enforcement decisions: Bovis Lend Lease Ltd vs Triangle Development Ltd. The really useful point is that His Honour Judge Thornton has drawn together a handful of past cases that were said by some to be at odds with one other. He explains that they are entirely consistent in their treatment of circumstances in which firms can deduct money from an adjudicator's award.

Bovis was the management contractor for the conversion of Victorian townhouses into swish apartments in London SW8. The JCT98 management form applied. There was a quarrel between Bovis and Paul Brookes Architects, Triangle's contract administrator, after it issued negative payment certificates. Bovis said that was not right, and called for the adjudicator. He agreed with Bovis, and ordered Triangle to pay £158,000. Meanwhile, Triangle terminated or purported to terminate Bovis' employment on the grounds that it was failing to proceed regularly and diligently with its work.

So, when the adjudicator's decision turned up telling Triangle to pay, there was a good head of steam in the dispute. "Shan't pay," said Triangle. "Blow this," said Bovis and went to court to make it pay. Triangle argued that it was entitled to hold on to the £158,000 despite the binding decision.

Now, let's get back to basics. Ordinarily, the decision of an adjudicator will require immediate payment without deduction, cross-claim, abatement or stay of execution. This is because the sum in question is due by virtue of the statutory and contractual provisions requiring compliance. The courts have repeatedly held that no deduction or withholding will ordinarily be allowed. Oh dear, watch out for that word "ordinarily": there are exceptions to the rule, which I will come to. Meanwhile, the rule is that defences or cross-claims not raised in the adjudication cannot be raised later in an enforcement hearing.

Common exceptions are errors of jurisdiction, procedural unfairness or bias on the part of the adjudicator, all of which I have talked about previously. There are at least three further exceptions, and these are more tricky. First, there is what I call the "axiomatic effect" of an adjudication; this happens when, say, the contractor is 10 weeks late and is awarded a six week extension by the adjudicator. The axiomatic effect is that the contractor is four weeks late. Therefore, the employer can set against any adjudication award four weeks worth of liquidated damages.

The second exception has a legalistic title: "The express preservation of equitable and common law rights of set-off." That fancy term is intended to defeat the impregnability of an adjudicator's award. Put simply it brings in by the back door the right to withhold money. In both of these exceptions it is necessary to serve a "withholding notice", or else the right to set-off is lost.

The third case is the one that allowed Triangle to hold on to the £158,000. It is what I call an "express event" clause.

By now, you can be forgiven for being lost in fog. Come with me and I will tell you what this is about. Triangle, it seems, successfully determined the contract. A second adjudication decision said so. That meant, according to the JCT contract, that further payment and the release of retention was not required. That was Triangle's trump card – and a withholding notice was not needed, either, because that is needed only to deduct from sums otherwise due. Since no money was due on successful determination, no withholding notice need be given. More fog; sorry about that. The judge gave us a set of foglights:

• The decision of the adjudicator means the money must be paid without deductions.
• For a withholding, a proper notice must be given in time.
• However, where contractual terms create an entitlement to avoid or deduct from an adjudicator's award, they will prevail.
• Equally, where a paying party is given an entitlement to deduct from the sum directed to be paid as a result of the same or another adjudication decision, the first decision will not be enforced, or judgment will be stayed.

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

Top