If an adjudicator tells you to pay up, can you issue a withholding notice and demand a big cheque instead? Tony Bingham examines a recent judgment

Tony Bingham

It’s only to be expected. If the adjudicator tells you to stump up a lump of cash to the other bloke, it will run through your mind that there could be ways to block the result. That’s where all those clever jurisdiction challenges come in handy, why people stall with the cheque, why people dance around with enforcement proceedings and the High Court … and often waste their money.

An angle that groundwork and remediation contractor Vertase FLI tried against Squibb, their demolition and asbestos removal contractor, was interesting. Vertase said it had no quarrel with the adjudicator’s award. “Yes, yes, we will pay, but …” The “but” was that after the award arrived on the desk, Vertase told Squibb it had a claim to do with their same subcontract and would now pay the £167k award less a set-off for the claim. Vertase included in its claim document a “withholding notice” for £290k, so yah boo to you and send us a cheque instead for the net difference. The issue is whether you can set off, withhold money, from an adjudicator’s award and his order to pay.

Why on earth do you subcontractors doing a £45,000 tiddler job put a £15,000 per week noose around your neck? Are you that desperate for work?

The subcontract was straightforward. Squibb paid Vertase £45k to demolish part of the former Ford Factory in Leamington Spa. Squibb didn’t get done in time and Vertase is trying to get £15,000 per week late completion damages. (Pause there: why on earth do you subcontractors, doing a £45,000 tiddler of a job, put a £15,000 per week noose around your neck? Are you that desperate for work?)

Where was I? Ah yes, what are the rules and rigmarole to set off and withhold all or part of the sum due according to an adjudicator’s award? Begin withunderstanding this: your chances of reducing the sum due are thin. I will tell you a better way after I have trooped around the set-off rules.

The starting point is a reminder that 28-day adjudication is a rough and ready but rule-based affair. “The need to have the ‘right’ answer has been subordinated to the need to have an answer quickly,” as the judge in Carillon vs Devenport CA 2006 put it. Then note what the High Court judge said to Vertase and Squibb: “In general, an unsuccessful party to an adjudication cannot seek to avoid the result of that adjudication by relying on the right to set off by any other claims”. What did he mean by “in general”? He meant that there are exceptions to the rule.

The easiest exception to understand (but still rare) is where the adjudicator expressly stated that the sum awarded to be paid has not yet reached the “due date” or “final date for payment”. Then it is open to the payer such as Vertase to issue a withholding notice. Slightly more vague is where the adjudicator has said money is payable in accordance with a particular clause. Then it becomes fair comment for the payer to issue a withholding notice.

Vertase included in its claim document a ‘witholding notice’ for £290k, so yah boo to you and send us a cheque instead for the difference

By the way, these same exceptions apply with care to the revised statutory payment rules, which talk about “pay-less” notices. Another exception is what happened in a Balfour Beatty case some years ago. The adjudicator made a declaration that the employer was entitled to recover a specific sum by way of late completion damages. You might see that it was now open to the employer to serve a notice of intention to deduct or withhold whenever it suited him, and he did. Another example is where the adjudicator has awarded an extension of time for part of the late running by the contractor. It then follows logically that the employer can withhold damages for the part of the delay where no extension of time was awarded.

One other exception is very tricky. It is where the contract has adjudication provisions but is not a construction contract and so not subject to the payment rules in the statute regulating the construction industry. Then there is a chance that no such thing as a withholding notice is required and a chance that set-off is permitted, though the judge in Vertase did say that clear words permitting set-off against the adjudicator’s award would be required.

As to Squibb and Vertase, the judge told Vertase to pay up. Mind you, a far easier way would have been for Vertase to bring their £290k claim under a fresh adjudicator. They did. I told you about it on 4 December here.

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