Background
FK Construction Limited (“FK”) was sub-contractor to ISG Retail Limited (“ISG”) for works involving roofing and cladding in relation to ISG’s Project Barberry. FK issued an application for payment of £1,691,679.94. ISG failed to issue a payment notice, submitting a pay less notice instead. The sum sought by FK was not paid, and FK referred the dispute to adjudication. The adjudicator’s decision (“the Wood Decision”) was that ISG had to pay FK the whole sum applied for because ISG’s pay less notice was late and therefore invalid. ISG did not comply, and FK raised enforcement proceedings.
There were three other adjudications between FK and ISG on Project Barberry. These included “the Molloy Decision”. The Molloy Decision concerned the gross valuation of Project Barberry. It decided that FK was entitled to a gross value of £906,738.20 in respect of the sub-contract works. There were also three adjudications in relation to a separate project between the parties, Project Triathlon. The effect of those adjudications was that FK owed ISG a total of £66,620.68 on Project Triathlon.
ISG defended the enforcement of the Wood Decision, arguing that the court had discretion to permit ISG to ‘set off’ the Wood Decision against the Molloy and Project Triathlon Decisions. In accordance with the Molloy Decision, ISG sought to limit enforcement of the Wood Decision to £906,738.20. ISG also invited the court to deduct £66,620.68 based on the Triathlon Decisions. Ultimately, ISG contended that the sum due to FK overall was £840,117.52. FK argued that there was “no compelling reason” why the Wood Decision should not be enforced in full.
The court rejected ISG’s set off arguments and enforced the Wood Decision in full.
The Molloy Decision: set -off?
Courts will only exercise their discretion to permit set off between adjudication decisions in very limited circumstances. Principally, to exercise this discretion: (i) there must be two valid and enforceable adjudication decisions; (ii) the decisions must involve the same parties; and (iii) the effect of the decisions must be that money is owed by each party to the other.
The court rejected ISG’s argument for ‘set-off’ because the court could not determine the validity or enforceability of the Molloy Decision - as it had not been asked to do so. The court was therefore not dealing with two simultaneous sets of proceedings involving the enforcement of two adjudication decisions; it was only dealing with the Wood Decision. Consequently, the court could not give effect to the Molloy Decision, and so could not apply ‘set-off’; and also, because the Molloy Decision did not award a sum for payment (it declared a value only) there was nothing to ‘set-off’.
The Triathlon Decisions: set-off?
The court also refused to permit a set off in respect of the Triathlon Decisions. No separate enforcement proceedings had been raised for the Triathlon Decisions, meaning that the court was unable to determine the validity and enforceability of the Triathlon Decisions. Also, one of the Triathlon Decisions was subject to a jurisdictional challenge, which was not before the court.
Take Home Points
- Courts will rarely refuse to enforce valid and enforceable adjudication awards in full.
- Courts will, in principle, only permit a set off between adjudication decisions where (i) there are two valid and enforceable adjudication decisions; (ii) involving the same parties; and (iii) the effect of the adjudication decisions is that each party owes the other money.
- Courts are unlikely to consider applying a set-off between adjudication decisions unless the enforcement of those decisions and any challenges thereto are before the court simultaneously.
This article was co-authored by, Alejandro Coghill, Trainee, Construction, Engineering and Infrastructure Disputes.