Can set-off be used to defend or disrupt enforcement of an adjudicator's decision?

Background

In this matter the Defendant, Caldwell Construction Ltd ("Caldwell"), had hired machinery and equipment from the Claimant, C.N.O Plant Hire Ltd ("CNO") to carry out construction works. Prior to the enforcement proceedings, there had been two adjudications between the parties.

• The first Adjudication was initiated by CNO on a "smash and grab" basis. After CNO's submission of an Interim Application for Payment, Caldwell failed to pay the amounts owed for the hired plant. On 5 March 2024, the first Adjudicator (Mr Latham) ordered that Caldwell pay the notified sums, plus interest and the Adjudicator's fees.
• The second Adjudication was initiated by Caldwell in dispute of the first Adjudicator's decision. Caldwell sought a "proper valuation of the final account" and repayment of any sums found to have been overpaid to CNO. On 14 April 2024, the second Adjudicator (Mr Lord) valued the account and found that Caldwell was liable to pay a considerably smaller sum to CNO. Caldwell then only partially paid this sum on the basis that they were allegedly entitled to withhold their statutory CIS contributions from the payment.
• An application for summary judgment was filed by CNO seeking to enforce the decision made by the first Adjudicator. In response, Caldwell argued there should be a set-off against that decision and relied on the second adjudicator's decision, which had followed a true value adjudication.

Decision

It is well established that there are only limited grounds to challenge enforcement of an adjudicator's decision. This case is another example where the challenge did not succeed. The Court granted CNO summary judgment to enforce the first Adjudicator's decision and dismissed Caldwell's arguments concluding that:

• The discretion to permit a set-off against an adjudicator's decision established in HS Works Ltd v Enterprise Managed Services Ltd [2009] EWHC 729 (TCC) is limited.
• The principle only applies where there are two valid and enforceable decisions involving the same parties. In order to determine whether the two decisions are (i) valid; and (ii) enforceable, separate proceedings must be brought in respect of each decision. In this matter, CNO had only started enforcement proceedings in respect of the first adjudicator's decision. No enforcement proceedings had been brought in respect of the second adjudicator's decision, meaning the court was unable to decide whether both decisions were valid and enforceable.
• The Court also said that set-off should generally not be permitted where to take the second adjudicator's decision into account without requiring payment of the notified sum from the first adjudication would undermine the policy of prompt enforcement of Adjudicators' decisions. This upheld the decision of Justice O'Farrell in Bexheat Ltd v Essex Services Group Ltd [2022] EWHC 936 (TCC), which articulated that an employer must pay the notified sum if no valid payment or Pay Less Notice is issued, failure to pay allows the contractor to seek Adjudication for the owed sum, and compliance with the Adjudicator's decision is required unless directed otherwise.

Comment

This decision is another example of the Court's robust approach to adjudication enforcement: (1) the Court is willing to enforce Adjudication decisions, (2) a first of multiple Adjudication decisions is likely to take precedence where the same evidence has been considered and the award is valid, (3) the Court has limited discretion to allow set-off against an Adjudicator's decision and (4) the rules of natural justice remain paramount to establishing the validity of an Adjudicator's decision.

The key takeaway from this decision is that parties looking to try and utilise set-off in adjudication enforcement must ensure that the Court has the opportunity to assess that both decisions are valid and enforceable, meaning that enforcement proceedings must be commenced for each of the decisions.