Can Adjudicator’s Decision be Affected by Ability to Pay?

Avoncroft Construction Ltd -v- Sharba Homes Ltd – Building Law Monthly, July 2008

This case was concerned with whether the employer could set off liquidated damages against an amount decided by an adjudicator. A separate issue was whether the court should stay enforcement of the adjudicator’s decision because of doubts over the financial position of the contractor who was seeking to enforce.

The defendant was prepared to pay the monies into court providing they were not distributed until the outcome of a second adjudication.

In Balfour Beatty Construction -v- Serco Ltd [2004] EWHC 336 the court had said:-

a) where it follows logically from an adjudicator’s decision that the employer is entitled to recover a specific sum, by way of liquidated and ascertained damages, then the employer may set off that sum against monies payable to the contractor pursuant to the adjudicator’s decision.

b) Where the entitlement to liquidated and ascertained damages has not been determined . . .then the question whether the employer is entitled to set off liquidated and ascertained damages . . . will depend on the terms of the contract and the circumstances of the case.

The above paragraph (a) was not applicable. The adjudicator had not decided that the defendant was entitled to deduct liquidated and ascertained damages. Paragraph (b) was not applicable either since there was no express provision in the contract which entitled the defendant to deduct and withhold liquidated and ascertained damages.

The application for stay of execution was made on the grounds of reports from a credit reference agency and also a number of County Court judgments against the claimant. However, the claimant’s parent company had provided a guarantee and had substantial assets. It was not appropriate therefore to stay execution pending the outcome of a second adjudication in a few weeks’ time. Following the decision in Interserve Industrial Services Ltd -v- Cleveland Bridge (UK) Ltd [2006] EWHC 741), the existence of a second adjudication did not entitle the defendant to a stay.

P C Harrington -v- Multiplex - CILL March 2008

This relates to the concrete works package at Wembley Stadium and depended upon the wording of a specific form of contract used.

Clause 21.9 required Multiplex to issue a certificate of payment, certifying payment due to Harrington less any amounts to be deducted under Clause 21.10. All certificates were to specify the amount to be paid and the basis of calculation.

Clause 21.10 provided how deductions were to be made in computing the amount of any payment.

There was a dispute over interim certificate No. 44 which specified a substantial sum for payment after retention but then made a substantial deduction which resulted in nothing being due to Harrington.

The court was asked to decide whether the amount due in the certificate was the amount before or after the deduction. The court decided on the latter. The court was asked whether this contract mechanism was contrary to the Housing Grants, Construction and Regeneration Act 1996 and concluded that it was not.

In conclusion, there is nothing legally wrong with providing in a contract that the amount due under a certificate is the amount due after any withholding has been made.