Withholding payment after adjudication

The adjudicator has sent his decision and ordered you to pay up to the other party for the works. And you or your lawyer can’t find a way of upsetting and resisting the order. But you now have a bright idea. Can you bring a new claim against that other party and withhold money arising in the new claim against the adjudicator’s order to pay up?

This came up in a case last week - Thameside Construction Company Limited vs Mr J Stevens and Mrs J L Stevens. I will get to the story about setting-off from an adjudicator’s decision in a minute. First, let me tell you how daft this ordinary building contract became.  Daft because these building works, under an ordinary JCT contract document, had an original contract sum of £600,000. The final account came to £1.186m. By then the customer was disputing the last £190,000. 

First, let me tell you how daft this ordinary building contract became. These building works had an original contract sum of £600,000. The final account came to £1m

The adjudicator had to fathom the value of the disputed account and did. Would you believe, there were 220 items in dispute? Moreover, the adjudicator observed, “the contractual mechanism of payments had fallen apart” and “the contractual context of the adjudication is something of a muddle”. He noted that no practical completion certificate had been issued. There was a claim for liquidated damages for the hitherto late completion. He was not asked to decide whether practical completion had been reached. He eventually ordered the balance of the account of £89,000 to be paid in the context of an interim certificate and left over any issues about when practical completion occurs, extension of time, and liquidated damages.

The customer now issued a withholding notice for the late completion damages and said it entitled them not to pay up the £89,000 order of the adjudicator. This is ambitious and tricky territory. The signposts tend to point one way - an adjudicator’s decision gives rise to an immediate payment obligation. But there might be a gate fractionally open: it depends upon what the adjudication was about. So, if it follows logically from an adjudicator’s decision that the employer is entitled to recover a specified sum by (say) liquidated damages for delay, then the employer may set-off that sum against monies payable to the contractor pursuant to the adjudicator’s decision, provided of course the rules for withholding are followed. 

Say there is a dispute about sums due for work done, which yields £100,000 due to the contractor, according to the adjudicator. In the same adjudication the employer claimed the contract was 10 weeks in delay beyond the contract completion date. Then the adjudicator awarded a six-weeks extension of time. It may well be said that a logical consequence is a claim for liquidated damages for four weeks’ delay. That’s the gate, which is nudged open. But there are fuzzy edges to that gate. For example, if the adjudicator has not reached any definite conclusion as to the total extension of time, then no specific entitlement to delay damages follows logically from the adjudicator’s decision. 

The signposts tend to point one way - an adjudicator’s decision gives rise to an immediate payment obligation

What are the decisions of the adjudicator if it is true that it is only decisions in an award that are binding? In most cases the adjudicator’s decision is a declaration that a particular sum is due. That puts beyond doubt that “A” owes and must pay £x to “B”. In another case a judge said: “It is only decisions that are binding, not the adjudicator’s reasoning.” 

He gave an example: suppose the adjudicator’s reason for deciding that sum owed to “B” is £x is because “B” was entitled to an extension of time of six weeks and prolongation costs. The extension of time is not only a reason but plainly a decision as well. It is an essential component and the consequence may be a logical right of the employer to withhold or set-off from the sums due under the adjudicator’s order to pay monies. 

In short, the decisions of the adjudicator are decisive and directive. If they direct a party to pay up, that’s that. No set-off or withholding can ever apply against decisions. Once the decisions are detected, do they leave that gate ajar, obviously and logically for a set-off? If so, it needs a withholding notice. 

In the Thameside case the court could not find an obvious consequence and ordered the adjudicator’s decision as to the £89,000 to be honoured.

Tony Bingham is a barrister and arbitrator at 3 Paper Buildings, Temple