However, claimants have their own last chance saloon. For the claimant in a corner, there is always the policy argument: that to agree with the respondent's contentions would amount to "driving a coach and horses" through the Construction Act.
For lawyers, such an argument is always likely to attract suspicion. After all, it appears to revolve around contentions as to what mischief or perceived ills the act was supposed to correct. It is therefore an argument open to abuse, often in circumstances when the contractual merits do not favour the party in question.
Just such a "policy" point was raised in a recent enforcement decision of the Technology and Construction Court in Birmingham. The case was Shimizu Europe Limited vs LBJ Fabrications Limited. LBJ had initiated an adjudication to claim a balance because of an interim application. However, it expressly dealt with Shimizu's contra-charges in its referral, using the following words: "The questions of deduction, set-off or withholding are not included in this referral or the redress sought."
The adjudicator duly decided the valuation of LBJ's claim, and under the contract LBJ was then required to issue a VAT invoice for that sum in order for it to become due. Shimizu asserted that it was entitled at that point to reiterate its contra charges/set-offs against the adjudicator's valuation of LBJ's claim – and it soon issued Part 8 proceedings to that effect. LBJ asserted that it was entitled to be paid in full.
One of LBJ's contentions was that Shimizu's argument would undermine the act by allowing parties to set up a contractual payment mechanism whereby the issue of a VAT invoice would be necessary to make the sum due.
The problem with the ‘policy’ argument is that the law imposes strict rules: one is the concept of ‘clean hands’
Her Honour Judge Kirkham found this argument unconvincing. While LBJ was arguing that there was an apparent injustice that could be subject to abuse, it was having scant regard for what it had referred to the adjudicator. If LBJ had simply referred to the adjudicator the issue of the balance due between the parties, then the rights of set-off would have effectively become rolled up in the adjudicator's decision and the issue of the VAT invoice would have been a formality.
The LBJ argument also failed to acknowledge that a certain amount of freedom of contract still exists under the Construction Act and that the mechanism of money only becoming due on receipt of a VAT invoice was not objectionable under the act. After all, receipt of proper VAT documentation is often an administrative headache in the construction industry.
The concept that one cannot set off against an adjudicator's decision is at best a general proposition that needs to be considered in the light of what the adjudicator is asked to decide and what the contract terms are that are to be applied. The judge in this case explicitly found that the adjudicator's decision did not purport to prevent Shimizu's rights of set-off.
The real problem with the policy argument is that the law imposes some stringent rules as to any argument based on fairness. One is the concept of "clean hands", and it can hardly have helped LBJ that it seemed to want to have its cake and eat it. On the one hand, it wanted an adjudicator to decide the amount of its claim, but on the other hand it wanted to exclude Shimizu's counter claim. If all LBJ obtained was a valuation of its own claims subject to Shimizu's counterclaims then LBJ pretty much got what it had asked for. The inequity or unfairness in such a result was difficult to spot.
James Bessey is a partner specialising in construction dispute resolution at Hammonds, Birmingham.