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Setting off against an Adjudicator’s award – when can you do it?

In Thameside Construction Company Ltd v Stevens the Technology and Construction Court considered whether a losing party in adjudication can set-off against sums awarded by an adjudicator.

The general rule is that courts will not permit set-off against monies awarded by an adjudicator. The only exceptions to this rule are, broadly:

  • if the relevant contract contains an express term permitting set-off against sums awarded by an adjudicator;
  • if an adjudicator decides that a sum claimed is not yet due (in which case when that sum is certified, any genuine set-off may then be raised); or
  • if an adjudicator decides that a set-off should be permitted as part of his award.

Thameside referred a dispute to adjudication regarding its final account for works at the Stevens’ home. The Stevens alleged that certain works were defective and sought the costs of rectification together with liquidated damages due to late completion.

The adjudicator assessed the Stevens’ counterclaims and deducted sums in respect of the defective work. The adjudicator found that a balance of £88,000 was due to Thameside and as this award was the equivalent of an interim certificate issued under the contract, he directed that payment should be made within fourteen days.

Mr and Mrs Stevens paid part of this award but served a withholding notice seeking to hold back £40,000 in lieu of liquidated damages. The argument was that the adjudicator had treated his decision as an interim certificate and so a withholding notice could be given against it.

In considering the decision, the Court noted that a distinction can be made between the operative part (or parts) of the decision and non-material, or background, findings that form part of the adjudicator’s reasoning. The operative part of this decision was the order for payment. In the circumstances withholding was not permissible.

The upshot of the judgment was that, in accordance with previous case law, the sum awarded by the adjudicator should be paid without set-off or withholding. This is consistent with the courts’ policy of giving full effect to adjudicators’ decisions.

For further information please contact Matthew Phipps.