My colleague Catriona Dodsworth and I feel compelled to respond to Belshaw's article as we were both personally involved in this case. We acted for Purac in the adjudication, first instance hearings and the hearing before the Court of Appeal.
First, and most importantly, we think that Belshaw is mistaken in proposing that the case will have any general application. The case was decided very much on its own particular facts.
Second, and more specifically, it is incorrect to conclude that "a factor that probably influenced the Court of Appeal was that, as the adjudication was ad hoc, the adjudicator's decision was not binding on the parties. Therefore, there was nothing to prevent the exercising of the contractual right of set-off when it came to enforcement." In fact, the position was quite the opposite. The contract provided that the adjudicator's decision was final and binding.
What really influenced the Court of Appeal was the fact that the Construction Act did not apply to the adjudication. By way of a brief background, the payment provisions in Parsons' subcontract were fixed by reference to certain milestones. Parsons submitted an application for payment which Purac rejected on the grounds that the relevant milestone had not been reached. A short time later, Purac excluded Parsons from site and employed others to complete its works.
Parsons then referred the dispute to adjudication. The adjudicator, in his wisdom, decided Parsons was entitled to payment despite not having achieved the relevant milestone.
Purac then served a withholding notice seeking to set off the cost of completing Parsons' works against the sum awarded by the adjudicator.
Parsons brought enforcement proceedings in the Technology and Construction Court and lost. It then went to the Court of Appeal, where it sought to rely on a number of cases in support of its submission that the adjudicator's decision must be complied with forthwith, without set-off. These included Solland vs Daraydan (as referred to in Belshaw's article) and the earlier case of VHE vs RBSTB Trust Company. The case of David McLean vs Swansea Housing, which Belshaw also referred to in his column, was also cited in support of a slightly different proposition.
Purac argued that, since VHE, Solland and McLean were all decided under the Construction Act and since it was common ground that the act did not apply, the cases did not apply to Parsons' appeal. The court agreed with this.
The very particular facts on which the Purac case turned were as follows:
Clause 31 of Parsons' subcontract said: "Nothing contained in this Deed … shall in any way restrict [Purac's] equitable or common law rights of set-off." The contractual procedure set out in clause 17 for the service of withholding notices was made subject to clause 31 and this was, without doubt, the most persuasive factor for the court.
In fact, Lord Justice Pill did confess to having had some trouble with the apparent conflict between the clauses. He said: "I have not found the question an easy one. When parties provide, in this context, a specific procedure by which a claim to withhold payment is to be notified and detailed, it cannot readily be concluded that the effect of a general clause such as clause 31 is to make the procedure unnecessary."
Nonetheless, the court found that clause 31 was drafted in sufficiently wide terms to avoid the necessity of complying with the contractual procedure for serving withholding notices and the court did not, therefore, have to consider whether a valid notice had been given.
One can imagine that the court would have had even more difficulty had the act applied to the adjudication, given that clause 31 could be said – and, indeed, was said on numerous occasions – to drive a coach and horses through the act. So, much as we would have liked it to have been otherwise, it is hard to see how Purac can have any general application.
Postscript
Nick Kippax is a senior solicitor at Masons. This article was coauthored with Catriona Dodsworth, a partner at Masons.
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