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Can a claim for defective works be set off against a contractor’s adjudication award?

Gateley Legal

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In the case of Davis Construction (South East) Ltd v Sanzen Investments Ltd [2021] EWHC 2216 (TCC), an employer attempted to defer enforcement proceedings in relation to an adjudicator’s decision based on the employer’s claims for damages for defective work and delay. The attempt was unsuccessful.

Background Facts 

The contractor obtained an adjudicator’s award in respect of its final account relating to the construction of a housing development. The employer had not paid according to the decision, so the contractor applied to the High Court for summary judgment for enforcement.

The employer resisted the application and contended that the matter should be dismissed or adjourned pending resolution of the employer’s own counterclaim for damages amounting to some £200,000 for defective works and delay.

The employer relied on the inclusion of a new clause, 1.13 within the JCT Intermediate Contract with Contractor’s Design, which provided for a right of set-off in respect of sums recoverable as between the employer and contractor. 

The employer had issued a formal letter of claim to the contractor in February 2021 in respect of its claim for damages. This pre-dated the contractor’s reference to adjudication in March 2021.

Despite this chronology, in its response to the adjudication in April 2021, the employer had not raised any issue as to the quality of the contractor's work.

The Issue

The court had to determine whether:

(i)    the counterclaim operated as a set-off under clause 1.13 of the contract and was sufficient to prevent summary judgment (per the employer); or

(ii)    the statutory adjudication scheme, and its "pay now, argue later" mechanism prevailed (per the contractor).

The Decision 

The starting point was that an unsuccessful party to an adjudication could not seek to avoid paying an award by relying on the right to set-off any other claims. The whole driving force behind adjudication is to ‘pay now, argue later’.  

The legal test to be applied was whether there was a defence which would have “a real prospect of success” to counter the enforcement of the adjudication award.

Applying Squibb , and RWE Npower v Alstom , the judge concluded that the operation of clause 1.13 was subject to the provisions of the scheme and the Act’s "pay now, argue later" ethos, rather than the other way around. Therefore, the right of set-off was not a defence to enforcement.

Implications

Yet again, the court upheld enforcement of an adjudicator’s award.

It is well-established in adjudication enforcement proceedings that there are limited grounds to resist enforcement. A reminder of the limited defences available are: 

  • an absence of jurisdiction on the part of the adjudicator;
  • a material breach of natural justice on the part of the adjudicator; or 
  • in rare circumstances, that the circumstances are such as would be unjust to permit enforcement.

Do you require further information regarding this case?

If you require further information or advice, please contact our specialist surety and construction teams who are able to help. 

Gateley Plc is authorised and regulated by the SRA (Solicitors' Regulation Authority). Please visit the SRA website for details of the professional conduct rules which Gateley Legal must comply with.

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