SETTING OFF DURING AND AFTER THE ADJUDICATION
What happens when the Employer raises for the first time a set off defence during the Adjudication to try and reduce the sum claimed or to rebut the claim? What happens when the paying party raises a set off defence after the Adjudicator’s decision is made?
Adjudicator’s duty to consider set off claims
In CC Construction Limited -v- Raffaele Mincione [2021] EWHC 2502 (TCC) it was decided that if the Adjudicator fails to properly consider the Employer’s defences of set off against the Contractor’s claim for unpaid monies owed to them by the building Employer, the Adjudicator’s decision will not be enforced by the TCC.
In Downs Road Development Limited LLP -v- Laxmanbhai Construction (U.K.) Limited [2021] EWHC 2441 (TCC) the Adjudicator’s decision was unenforceable because the Adjudicator had refused to consider a set off cross defence of the Employer on the grounds that a capping beam had not been designed or built correctly by the Contractor.
Breach of Natural Justice
The TCC enforcement in the Down’s case failed because the Adjudicator breached natural justice in not considering the set off defence of the Employer.
SETTING OFF AGAINST THE SUM AWARDED BY THE ADJUDICATOR
After Adjudicators publish their decisions, the Defendant may in enforcement of an Adjudicator’s decision in the Technology and Construction Court try to launch a set off defence of sums they claim to be due to them from the victorious Building Contractor in the Adjudication.
What happens if they do this? The general answer is that such a set off defence claim of the Defendant paying party against the sum awarded by the Adjudicator is very likely to fail in the TCC. In order to claim a set off defence it must be raised in the Adjudication itself and not after the Adjudicator’s decision is made.
The Davis Construction (South East) Limited -v- Sanzen Investments Limited [2021] EWHC 2216 (TCC) the court said that set off against the Adjudicator’s decision may be allowed where the contract properly construed gives a right to set off against the Adjudicator’s award and where matters sought to be set off arise as a result of an Adjudicator’s decision.
The general rule that if an Employer party having lost an Adjudication tries to head off the Summary Judgment enforcement of the Adjudicator’s decision in the TCC by launching a claim for a sum of money to be set off against the amount awarded by the Adjudicator it will fail, except in very exceptional and rare cases.
In the recent decision of this court of Faithdean plc -v- Bedford House Ltd [2021] EWHC 962 (TCC) 2021 WL 00832306 the court observed that it is very difficult to set off against an adjudicator’s decision and there are limited exceptions to that general principle. In Thameside Construction Co Ltd v Stevens [2013] EWHC 2071 (TCC), the court decided that the employer under a building contract could not set off liquidated damages against a sum due to the contractor following an Adjudicator’s decision. Ultimately whether a retrospective set off defence can be made will “depend on the precise words of the set off-provisions in the contract”.
What are the exceptions to setting off against the Adjudicator’s decision?
One exception is where the terms and conditions in the contract allow for a set off after the Adjudicator’s decision. In Davis Construction (South East) Limited -v- Sanzen Investments Ltd [2021] EWHC 2216 (TCC) 2021 WL 02929933 the court said it is necessary to construe the terms and conditions in the contract to see if a right to set off is contained in it.
Another exception is where the Adjudicator has been misled by the claiming party. In the decision of the of Global Switch Estates Limited -v- Sudlows Ltd [2020] EWHC 3314 (TCC) the court declined to uphold an application for summary judgment in the TCC where the Adjudicator had been misled by the enforcing party, so that there had been a breach of natural justice.
If all of the items and issues in dispute, referred to in the Defence, have been properly aired and considered by the Adjudicator, it will not be possible to show that the Adjudicator was misled.
Getting thrown out of the TCC?
The result of these cases is that if the Employer Defendant to an application for enforcement of a summary judgment brought by the Contractor can persuade the TCC that there has been a breach of natural justice, as in the Downs Road Development Limited LLP -v- Laxmanbhai Construction (U.K.) Limited, the TCC will throw out the application for summary judgment enforcement of the Adjudicator’s decision.
Advisers and representatives of the Contractor in the Adjudication will be left with the judgment call of whether to ask the Adjudicator to address the set off defence of the Employer during the Adjudication, to remove the chance of an attack of the Employer on the Adjudicator’s decision grounds that the Adjudicator has breached natural justice, by not considering the set off defence.
On the other hand, if the Employer raises the set off defence after the Adjudicators’ decision, to reduce or obliterate the sum awarded by the Adjudicator, they are not likely to succeed.
