How to deal with multiple adjudication decisions

It is well known that at any time, parties to construction contracts can refer disputes to adjudication (Section 108, Housing Grants, Construction and Regeneration Act 1996). That leaves mirrored questions – just because you can refer a dispute, should you? And if you do, what do you do with multiple decisions?

As far back as 2009, Coulson J (as he was then) warned the parties in JPA Design and Build Limited v Sentosa (UK) Limited [2009] EWHC 2312 (TCC) that multiple, tactical adjudications would not be the best way of achieving a proper resolution of that claim. Nearly 15 years on, that message has clearly not been heard. It remains commonplace (perhaps increasingly so) for parties to slog through multiple adjudications, whether on the same or a range of projects, which can lead to contradictory decisions.

In her recent decision in FK Construction Limited v ISG Retail Limited [2023] EWHC 1042 (TCC), Mrs Justice Joanna Smith reiterated Coulson J’s comments in Sentosa. She gave a helpful recap of the circumstances when the Court will allow a defendant to resist enforcement of an adjudication decision by setting off adjudication decisions in its favour.

In this case, ISG as the main contractor on a scheme in Avonmouth, Bristol (referred to as Project Barberry), had engaged FK Construction Limited (FK) to carry out the cladding and roofing works under a bespoke form of sub-contract. FK applied to the Court for enforcement of an adjudication decision for just under £1.7m on Project Barberry, which related to ISGs non-payment of an interim application for payment made by FK. However, the parties had ongoing disputes with Project Barberry and a separate project, Project Triathlon.

ISG resisted the enforcement proceedings arguing that the courts had discretion to order a set off or withholding against the adjudicator’s award by reason of other adjudication decisions affecting the same parties. ISG wanted to set off three other decisions on Project Barberry and the net effect of three decisions on Project Triathlon.

The set off was refused, and payment of the full sum was enforced. Mrs Justice Joanna Smith reiterated the Court’s well-established preference for the enforcement of adjudicators’ decisions. Namely that, absent special circumstances; the decision of an adjudicator must be complied with, and the losing party cannot simply withhold payment on the grounds of anticipated recovery in a future adjudication.

Helpfully, the Judge also re-stated the four stage test, originally set down in HS Works Ltd v Enterprise Managed Services Ltd [2009] EWHC 729 (TCC), which the Court will go through when considering whether to allow various decisions to be set off against each other.

1. Are both decisions valid? If the decision to be set off is not valid, then set off is not permitted and there is no need to consider the further stages.
2. Both decisions must be capable of being enforced or given effect to.
3. If both of the above tests are met, the Court may give effect to both decisions, providing that enforcement proceedings have been brought by both parties.
4. Where the above three tests are met, the Court has a discretion (but not an obligation) to allow set off to apply.

In applying this test, Smith J held that ISG had failed at the first hurdle. As part of the enforcement proceedings the Court was not able to determine the validity of a separate adjudication decision which had only recently become available before the hearing, and which related to a gross valuation of the entire sub-contract sum payable to FK on Project Barberry.  In short, the Court was not able to give effect to a decision which was not yet enforceable.  Similarly, ISG had not issued separate proceedings in relation to that subsequent adjudication decision. Finally, the Court rejected any suggestion that it had discretion to permit a set off or withholding as the exception envisaged by HS Works did not apply to the facts of this case.

Perhaps the key takeaway from this is that whilst it is possible for competing decisions to be set off against each other, the process is technical and requires numerous legal and procedural hurdles to be crossed. Taking early advice is crucial, please contact a member of our specialist Construction and Engineering Team for more information.