Thameside Construction Co Ltd v Mr & Mrs Stevens

[2013] EWHC 2071 (TCC)

Mr and Mrs Stevens employed Thameside to carry out extensive construction works at their home. Thameside served a Notice of Adjudication claiming that a dispute had arisen “following the Employer’s failure to pay amounts due” and seeking “a peremptory Decision from the Adjudicator”. The Notice sought £190k and that Mr and Mrs Stevens should pay such sum “without set-off”. Mr and Mrs Stevens’ Response noted that the adjudicator had not been asked to determine the question of practical completion and so this fell outside of his jurisdiction. They also asserted that a final certificate could not be issued due to quality and other issues and raised a counterclaim, £88k for defects and £60k for liquidated damages, which they said they were entitled to set-off against any sum decided to be due to Thameside. Thameside said that no counterclaim could be raised as there was no withholding notice.

The Adjudicator awarded Thameside £88k and specifically on one of the supporting schedules put the figure of £0.00 against the LADs. Six days later the Contract Administrator issued an Interim Payment certificate, certifying a net sum due for payment of £88k. On the same day, Mr and Mrs Stevens wrote to Thameside purporting to give a withholding notice stating that it was their intention to withhold payment of £40k in relation to liquidated damages. They paid the balance. In the enforcement proceedings, Mr and Mrs Stevens said that the decision could be and was to be treated in effect as equivalent to an interim certificate and they were therefore entitled to set-off or withhold against the sum payable pursuant to the decision provided that the withholding was done in accordance with the contract between the parties. Having reviewed the previous cases, Mr Justice Akenhead set out the following “broad conclusions” on the issues arising where a party seeks to set-off against or withhold from sums which an adjudicator has said are to be paid:

“(a) The first exercise should be to interpret or construe what the adjudicator has decided. In that context, one can look at the dispute as it was referred to him or her. That can involve looking at the Notice of Adjudication, the Referral Notice, the Response and other “pleading” type documents. One can have regard to the underlying construction contract. Primarily, one needs to look at the decision itself.

(b) In looking at what the adjudicator decided, one can distinguish between the decisive and directive parts of the decision on the one hand and the reasoning on the other, although the decisive and directive parts need to be construed to include other findings which form an essential component of or basis for the decision (see Hyder).

(c) The general position is that adjudicators’ decisions which direct that one or other party is to pay money are to be honoured and that no set-off or withholding against payment of that amount should be permitted.

(d) There are limited exceptions. If there is a specified contractual right to set-off which does not offend against the statutory requirement for immediate enforcement of an adjudicator’s decision, that is an exception albeit that it will be a relatively rare one. Where an adjudicator is simply declaring that an overall amount is due or is due for certification, rather than directing that a balance should actually be paid, it may well be that a legitimate set-off or withholding may be justified when that amount falls due for payment or certification in the future. (See Squibb).

(e) Where otherwise it can be determined from the adjudicator’s decision that the adjudicator is permitting a further set-off to be made against the sum otherwise decided as payable, that may well be sufficient to allow the set-off to be made (see Balfour Beatty).“

Here, if you just looked at the wording used by the adjudicator, there could be no doubt that there would be no right of set-off or withholding. The adjudicator directed that payment should be made within 14 days and made it clear that he had allowed nothing for liquidated damages and that there should be no set-off albeit that Mr and Mrs Stevens were entitled to set-off the specific sums already allowed to them in the adjudicator’s calculations. However some confusion arose because the adjudicator formed the view that issues as to the date of practical completion, extension of time and liquidated damages should be left over “to another day”. This provisional view was set out in a footnote, which was described by the Judge as being in the nature of an obiter type of finding, albeit it was clearly not part of the decision.

The Judge was of the view that, in deferring this issue “to another day”, the adjudicator had fallen into error. The issue of liquidated damages was part of the dispute which he was required to resolve because it was raised at least as a defence by way of set-off to the disputed claim put before him. Although Mr and Mrs Stevens had stated that “the question of whether practical completion was achieved” fell outside his jurisdiction, what did not fall outside his jurisdiction was the question of whether there was any entitlement to liquidated damages, something which involved considering issues related to the question of when practical completion was achieved. Of course, Mr and Mrs Stevens actually paid out over half of what the adjudicator ordered and in that sense had accepted that he had jurisdiction. This was why they argued that the adjudicator was treating his decision as if it were an interim certificate and hence he must be taken to have envisaged that there could be a later set-off or withholding against his decision.

However taking the decision as a whole, the adjudicator was explaining his reasons as to why he was ordering an immediate payment. The adjudicator was not saying that he was expecting, anticipating or permitting the loser in the adjudication to be able to set-off the clearly and obviously disputed claim for liquidated damages. The adjudicator did not, for example limit himself simply to declaring what the net sum outstanding was; he actually directed that payment of the sum was to be made. There was no good reason to assume that the adjudicator meant anything other than that the specified sum would be paid within 14 days. That said, the Judge noted that Mr and Mrs Stevens were not left without a remedy: they could themselves proceed to adjudication or to a final dispute resolution in respect of the liquidated damages claim. However, they did have to pay the £40k plus costs.