The principles applicable to the enforcement of adjudicators' decisions are well-established in English law: with the two principal defences to enforcement being a breach of the rules of natural justice, or a challenge to the adjudicator's jurisdiction.
In CNO Plant Hire Ltd v Caldwell Construction Ltd [2024] the Technology and Construction Court (TCC) considered a slightly more unusual attempt by a defendant to resist enforcement. In this case, the defendant argued that the court should set off or withhold enforcement of a first adjudicator's decision on the basis of a subsequent adjudicator's decision.
In this article, we summarise some of the issues arising in the case, including: a brief reminder on the law relating to the commencement of true value adjudications; and the test for when one adjudication decision may be set off against another.
Background facts on the case
- In September 2022, C.N.O Plant Hire Ltd (the Claimant) entered a subcontract with Caldwell Construction Limited (the Defendant).
- The Claimant commenced a "smash and grab" adjudication against the Defendant related to a payment application made in December 2023 (Adjudication 1). The Defendant had not issued a payment notice or pay less notice against it. Mr Latham decided on 5 March 2024 that the Defendant must pay to the Claimant £253,425.56, plus interest and the Adjudication's fees.
- The Defendant did not pay and commenced a second adjudication in March 2024, seeking "proper valuation of the final account" and repayments of any sums found to have been overpaid to the Claimant relating to an interim application made in September 2023 (Adjudication 2). The Claimant challenged Mr Lord's jurisdiction to deal with Adjudication 2 on the basis that the dispute related to the same, or substantially the same, subject matter. Mr Lord decided that he had jurisdiction and decided on 14 April 2024 that the Defendant must pay the Claimant £89,480.94 plus VAT (albeit slightly less was paid due to the Defendant's assertion that it was entitled to withhold statutory CIS deductions).
- The Claimant applied for summary judgment to enforce the decision in Adjudication 1. The Defendant resisted enforcement, inviting the court to exercise its discretion to set off or withhold enforcement, on the basis of a set off against Adjudication 2.
The law on adjudication enforcement and set-off
HHJ Kelly provided a helpful reminder of both:
- the "well-established legal principles applicable to adjudication enforcement"; and
- the authorities on set off of adjudicator's decisions.
Adjudication enforcement
HHJ Kelly cited from O'Farrell' J's judgment in Bexheat Ltd v Essex Services Group Ltd1, reminding the parties that it is now well established that:
"i) where a valid application for payment has been made, an employer who fails to issue a valid Payment Notice or Pay Less Notice must pay the 'notified sum' in accordance with section 111 of the 1996 Act;
ii) section 111 of the 1996 Act creates an immediate obligation to pay the 'notified sum';
iii) an employer is entitled to exercise its right to adjudicate pursuant to section 108 of the 1996 Act to establish the 'true valuation' of the work, potentially requiring repayment of the 'notified sum' by the contractor;
iv) the entitlement to commence a 'true value' adjudication under section 108 is subjugated to the immediate payment obligation in section 111;
v) unless and until an employer has complied with its immediate payment obligation under section 111, it is not entitled to commence, or rely on, a 'true value' adjudication under section 108."
Set off of adjudicators' decisions
HHJ Kelly set out extracts from the principles in respect of set off, as stated by Joanna Smith J in FK Construction Limited v ISG Retail Limited2 as follows:
"The general position is that adjudicators' decisions which direct the payment of money by one party to another are to be enforced summarily and expeditiously... No set off or withholding against payment of that amount should generally be permitted...
...There are, however, at least three limited exceptions to this general position:
i) a first, 'relatively rare', exception will be where there is a specified contractual right to set off...
ii) a second exception may arise where it follows logically from an adjudicator's decision that the adjudicator is permitting a set off to be made against the sum otherwise decided to be payable...
iii) a third exception may arise in an appropriate case, at the discretion of the court, where there are two valid and enforceable adjudication decisions involving the same parties, and whose effect is that monies are owed by each party to the other..."
Joanna Smith J also quoted Akenhead J's decision in HS Works Ltd v Enterprise Managed Services Ltd3, which set out the steps that need to be considered before the court should permit a set-off:
"a) First, it is necessary to determine at the time when the court is considering the issue whether both decisions are valid; if not, or if it cannot be determined whether each is valid, it is unnecessary to consider the next steps;
b) If both are valid, it is then necessary to consider whether both are capable of being enforced or given effect to; if one or other is not so capable, the question of set off does not arise.
c) If it is clear that both are so capable, the court should enforce or give effect to them both, provided that separate proceedings have been brought by each party to enforce each decision. The court has no reason to favour one side or the other if each has a valid and enforceable decision in its favour.
d) How each decision is enforced is a matter for the court. It may be wholly inappropriate to permit a set off of a second financial decision, as such, in circumstances where the First Decision was predicated upon a basis that there could be no set off."
The Defendant sought to argue that Adjudication 2 was not in respect of the same matters upon which Adjudication 1 was decided. However, HHJ Kelly gave this argument short shrift as both of the interim applications in September 2023 and December 2023 included the same work (and formed part of the Parties' attempts to agree a final account).
Issue 1: as the Defendant has not issued enforcement proceedings in respect of the second adjudication, should the court consider exercising its power to order a set off?
In this case, only the Claimant had applied to the court to enforce its Adjudication 1. The Defendant had not applied to the court to enforce Adjudication 2. The Claimant naturally argued that the Defendant "falls at the first hurdle" because it had not brought "separate proceedings", as required by the decision in HS Works. If the Defendant had done so, then the Claimant would have had the opportunity to respond. HHJ Kelly reaffirmed that:
"...Set off is not generally permitted in respect of an adjudicator's award. Such awards are to be enforced summarily and expeditiously. Whilst it is right that there are some limited exceptions to that general position, the exception relied upon by the Defendant in this case is that there is a subsequent valid and enforceable adjudication decision made by Mr Lord in the second adjudication so the court should order a set off..."
In light of this, she rejected the Defendant's argument that, regardless of its failure to issue separate enforcement proceedings, the court should exercise its discretion – and declined to order the set off sought.
Issue 2: should the court permit a set off on the facts of this case?
HHJ Kelly went on to consider whether the court should permit a set off on the facts of the case, notwithstanding the decision in relation to Issue 1. She considered that it was "immediately clear" that the subject matter and the sums claimed in Adjudication 1 and Adjudication 2 were the same (in short, because they both related to the agreement of the final account for the works completed in mid-2023, as noted above).
The court therefore accepted the Claimant's submission that:
"... an order taking account of Mr Lord's decision in the second adjudication without requiring payment of the notified sum decided by Mr Latham in the first adjudication would seriously undermine the policy of swift enforcement of adjudicators' decisions."
How will this case shape your litigation strategy?
While the decision in CNO Plant Hire Ltd v Caldwell Construction Ltd [2024] is perhaps not surprising, given the more recent clarifications made in Grove4 and FK Construction, it does provide useful guidance on set off to those faced with a situation where there are multiple adjudication decisions, and each party has applied to enforce the respective decisions.
The key takeaways are that:
- the TCC will generally enforce an adjudication decision, unless there has been a breach of natural justice or a jurisdictional issue.
- An adjudication decision directing payment is usually enforced without set off, except in specific circumstances such as where: (i) there is a contractual right to set off; (ii) where permitted by an adjudicator's decision; and (iii) where there are two valid and enforceable adjudication decisions involving the same parties, and whose effect is that monies are owed by each party to the other (and separate enforcement proceedings have been brought in relation to each).
Footnotes
1. [2022] EWHC 936 (TCC).
2. [2023] EWHC 1042 (TCC) at paragraph 20.
3. [2009] EWHC 729 (TCC) at paragraph 40.
4. S&T (UK) Ltd v Grove Developments Ltd [2018] EWCA Civ 2448.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
