David McLean Housing vs Swansea Housing Association appeared to suggest that in response to proceedings to enforce an adjudicator's decision, the paying party may be able to avoid enforcement by raising a set-off/counterclaim not canvassed during any preceding adjudication.
In McLean, the adjudicator decided that McLean was entitled to an extension of time that fell short of the date of practical completion. Based on this decision, Swansea served a notice withholding liquidated damages from the sums due to McLean.
The court declined to enforce the adjudicator's decision on the basis that Swansea was entitled to set-off liquidated damages against the decision. McLean therefore raised the prospect that an adjudicator's decision might be subject to set-off not previously canvassed on adjudication.
In Solland International vs Daraydan Holdings, the adjudicator decided that Daraydan should pay £650,000 to Solland. Daraydan refused to pay, so Solland went to court. Daraydan resisted enforcement on the grounds of set-off established in McLean. It sought to set-off liquidated damages and the cost of remedial works from the decision, the entitlement to which had not featured in the adjudication.
Not so, said the court in Solland; McLean established only that Swansea's right to set-off liquidated damages against the adjudicator's decision flowed from the decision itself, before which no right of set-off existed which could have been exercised during the adjudication.
As the decision in McLean turned on the adjudicator's decision and was not authority that set-off could, as a matter of course, be exercised against an adjudicator's decision, Daraydan's set-off therefore failed.
The clarification provided by Solland was then blurred by the Court of Appeal's decision in Parsons Plastics (Research and Development) vs Purac.
Parsons was engaged as subcontractor for the supply of a control package for sewage treatment works undertaken by Purac. Disputes arose over payment and although the works were not a "construction operation", the parties agreed to an ad hoc adjudication and the adjudicator decided that Parsons was entitled to £223,000.
Purac refused to pay, served a withholding notice and sought to set-off against the adjudicator's decision the costs that it had incurred in completing works to be undertaken by Parsons.
Even though there was some doubt as to whether Purac had served a valid notice, the court declined to enforce the adjudicator's decision, as the contract expressly provided a right of set-off which could be exercised irrespective of whether any notice had been served. Purac was therefore entitled to exercise its contractual right of set-off against the adjudicator's decision.
Does this mean that enforcement of an adjudicator's decision can be avoided by simply providing a contractual right of set-off, operating independently of and in priority to any obligation to serve a notice, which can be exercised against an adjudicator's decision on enforcement?
The answer is unclear. However, a factor that probably influenced the Court of Appeal in Purac was that as the adjudication was ad hoc, the adjudicator's decision was not binding on the parties, therefore there was nothing to prevent exercising the contractual right of set-off when it came to enforcement.
It will be interesting to see whether subject to the terms of any construction contract and the application of the Housing Grants Act, the decision in Purac has presented paying parties with the opportunity of pulling the proverbial "rabbit out of the hat" and avoiding enforcement of an adjudicator's decision.
Stephen Belshaw is a partner in the construction and engineering department at Lee Crowder Solicitors.