Ledwood Mechanical Engineering Ltd v Whessoe Oil & Gas Ltd & Anr

A dispute arose in respect of the defendant Joint Venture’s assessment of interim application 19. The contract incorporated adjudication provisions, even though the project related to the fabrication and erection of pipeworks at a natural gas terminal. An adjudicator held that the JV had wrongly withheld some £1.2m. The JV did not challenge the decision. However, it claimed that it was entitled to set off against the adjudication decision. The contract provided for a risk/reward (often known as "pain and gain") regime to be applied. The JV said that the elements of risk/reward should be dealt with on applications for interim payments. This was because the contract expressly stated that payment must be made on the basis of the sub contract price "as determined in accordance with the sub contract based on the target cost, subject to adjustments."

Ledwood had made their application 19 in July 2007. Before the adjudicator made his decision, there were three further interim payment applications, 20-22. The JV issued a revised payment notice against application 22 on 11 October 2007. However, when they received the adjudicator's decision, the JV issued a revision to that payment notice giving effect to the decision but also assessing their own deduction for risk/reward. This lead to a negative sum being due. Mr Justice Ramsey said that to permit the JV to use an adjustment to the payment notice for application 22 to give effect to the adjudicator's decision would ignore the wrongful deduction from application 19 and permit the JV to take account of subsequent events and other rights of set off which it was not entitled to do. However, the JV also argued that a risk/reward adjustment should be made in respect of application 19. They said that this was based on the logical corollary of the adjudicator's decision. In particular, they referred to the decision of Mr Justice Jackson on the Balfour Beatty v Serco case (see issue 59) where the Judge had said:

“ 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).”

The question for Mr Justice Ramsey was whether it followed logically that the JV was entitled to recover a specific sum by way of adjustment of the risk/reward element. First he had to consider whether a set off could be made. There was a dispute between the parties about the expended and revised target man hours which formed the basis of the risk/reward calculation. The Judge held that while the natural corollary of the decision was that it increased the number of expended hours in the pain/gain calculation, the calculation of the effect was not undisputed or indisputable. Thus, the position differed from the calculation of LAD’s which can be made using a number of weeks decided by an adjudicator and applying the contractual rate. Therefore, Ledwood was entitled to the summary judgment.