Do I Have A Right To Set Off One Adjudication Decision Against Another?

When parties to a construction contract are in disagreement over the value of works, it is not unusual for a number of separate disputes to arise throughout the duration of the contract, and for numerous adjudications to be commenced to determine those disputes. A question that can then arise is whether a party can seek to set off sums in its favour in one adjudication, to counter a decision that has been reached against it in another adjudication.

The recent case of ) provides further indication from the Courts that setting off adjudication decisions in this way is only available in limited, specific circumstances.

Background to the matter

ISG was the main contractor on a project referred to by the parties as 'Project Barberry'. ISG sub-contracted FK in relation to roofing and cladding works.

Adjudication proceedings were bought by FK when ISG failed to make payment in respect of an FK application for payment on Project Barberry. The adjudicator, Mr Wood determined that ISG was to pay FK £1,691,679.94 ('the Wood Decision'). ISG did not comply with the Wood Decision and so FK commenced enforcement proceedings.

Prior to the Wood Decision, there were three adjudication decisions concerning the parties in relation to Project Barberry. In addition to that, the parties were engaged on another project referred to as 'Project Triathlon', whereby there were a further three adjudication decisions concerning the parties.

In these proceedings, ISG invited the Court to exercise its discretion and order a set-off of the gross valuation of FK's works in an earlier adjudication decision regarding Project Barberry ('the Molloy Decision'), and/or the net sum due to ISG from FK following the decisions concerning Project Triathlon ('the Triathlon Decisions'), against the sum arrived at in the Wood Decision.

The test applied by the Court

The Judge applied the guidance as laid down by Akenhead J in HS Works Limited v Enterprise Managed Services Limited [2009] EWHC 729 (TCC), which provided that the following steps must be taken before it can be considered that a party is permitted to set off one adjudication decision against another:

• Step 1: It is necessary to determine at the time when the Court is considering the issue whether both decisions are valid. If not, or if this cannot be determined, then it is unnecessary to consider the subsequent steps.
• Step 2: If the adjudication decisions are valid then it is necessary to consider if they are all capable of being enforced / given effect to. If a decision is not so capable, the question of set off does not arise.
• Step 3: If it is clear that the decisions are capable of enforcement then the Court should enforce / give effect to them, provided that separate proceedings have been brought by each party to enforce each decision. The Court has no reason to favour one party if each has a valid, enforceable decision in its favour.
• Step 4: 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 in circumstances where the first decision was predicated upon a basis that there could be no set-off.

The Court's decision

In applying the above steps, the Court considered that this was not an appropriate case to order any set off. The Molloy Decision and the Triathlon Decisions fell at the first hurdle in that the Court could not determine whether they were valid or enforceable. Only the Wood Decision had been brought before the Court to invite enforcement and so it was unable to give effect to the earlier adjudication decisions which were not yet deemed enforceable. The Court awarded summary judgment in FK's favour in the sum of the Wood Decision.

Interestingly, with the Court deciding that the Triathlon Decisions were not enforceable, the point remains open to be determined by the Courts as to whether a set-off complying with the HS Works guidance would be valid if it arose from adjudication decisions concerning different construction contracts.