R J Knapman Limited v Richards and Others
What happens if an adjudicator decides that a sum of money is due and payable to the contractor, but in the same decision he also decides that the contractor is in culpable delay in circumstances where the employer is entitled to recover liquidated damages? That important issue appeared to have been comprehensively decided in the case of Balfour Beatty Construction v Serco Limited 2004 EWHC 3336. In the Balfour Beatty case the court said:
“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 the monies payable to the contractor pursuant to the adjudicator’s decision, provided that the employer has given proper notice…”
The case of R J Knapman Limited v Richards and others comes after and restricts the scope of the Balfour Beatty decision. Knapman was the contractor. Richards was the employer. It decides that if it does not strictly “follow logically” from the adjudicator’s decision that a sum is due by way of liquidated damages, then no set-off can be made by the employer. In the Knapman case, the adjudicator had decided that Knapman was entitled to an extension of time of 13 weeks and that liquidated damages and interest were therefore repayable in part. Richards therefore took the line that they were entitled to set off liquidated damages for the balance of the delay period up to practical completion. However, the court decided that there were three grounds for saying that the right to deduct liquidated damages did not follow logically:-
- The adjudicator had not carried out an exhaustive review of delay within the adjudication.
- Knapman had put its claim on the basis that practical completion occurred at the end of April 2006. It did not claim, in the alternative, that if there were a later practical completion date, it was entitled to an extension of time to that date. The court concluded that “the adjudicator was not dealing with any full extension claim in the adjudication”.
- Richards’ entitlement to deduct liquidated damages depended on there being a non-completion certificate. The contract administrator had not issued a non-completion certificate. Hence there was no entitlement to take liquidated damages.
The Knapman case illustrates that, even though the adjudicator has only awarded a partial extension of time, the employer cannot set-off liquidated damages unless the adjudicator’s review of delay is comprehensive and all relevant notices and procedures under the contract have been complied with.
