The set off of an adjudicator's decision – smash and grab v true value

The recent decision of C.N.O Plant Hire Ltd v Caldwell Construction Limited provides a stark reminder of the importance of sending prompt and valid payment and pay less notices where a payment application is disputed. A failure to do this can leave a payer with little option but to "pay now and argue later", even in the context of a subsequent more favourable adjudication decision. 

In this case, the court evaluated whether set off could be ordered in adjudication enforcement proceedings between two adjudicators' decisions.

Background 

CNO had contracted with Caldwell to hire machinery and carry out construction works. Various disputes arose, leading to three adjudications. The first two were the subject of this case:

• The first adjudication: The first "smash and grab" adjudication was referred by CNO concerning an interim application for payment which was not responded to with a payment notice or pay less notice. The adjudicator ordered that CNO was due £253,425, plus interest and fees.
• The second adjudication: Caldwell did not pay the sum ordered, instead referring the second adjudication to dispute the first adjudication decision, seeking the "true value" regarding the final account valuation. The adjudicator rejected CNO's jurisdictional objection (which was based on the assertion that the second adjudication was based on the "same or substantially the same" subject matter as the first) and determined that Caldwell pay CNO only £89,480. 

Caldwell then paid only £63,695 in respect of the Second Adjudication to CNO, withholding part of the ordered sum on the basis of statutory Construction Industry Scheme contributions from the payment. 

Following this, CNO issued proceedings to enforce the original award from the first adjudication. Caldwell argued that, based on the decision in the second adjudication regarding the "true value", there should be a set off against the decision in the first adjudication. 

Set-off argument rejected 

The court upheld the first adjudication decision and rejected Caldwell's set-off argument. It concluded that adjudication decisions are meant to be dealt with "summarily and expeditiously" with no set off or withholding against that amount except in three limited exceptions, where: 

1. there is a specified contractual right to set off (which will be relatively rare); or
2. it follows logically from an adjudicator’s decision that the adjudicator is permitting a set off to be made against the sum otherwise decided to be payable; or
3. in an appropriate case, and at the discretion of the court, there are two valid and enforceable adjudication decisions involving the same parties whose effect is that monies are owed by each party to the other. 

The court's discretion to permit a set off is limited and can only be used where separate proceedings have been brought to enforce separate decisions. As no proceedings had been brought by Caldwell regarding the second adjudication, it could not determine if this decision was valid and enforceable. Therefore, no set off could be permitted. 

If the court took the second adjudication decision into account without enforcing payment of the first adjudication, the policy of quick enforcement of adjudication decisions would be undermined. 

Osborne Clarke comment

This decision upholds the court's dedication to enforcing adjudication decisions, without delay and with limited exceptions. 

Parties are, as ever, reminded to keep a careful eye on applications for payment and to ensure that payment notices and/or pay less notices are issued on time and in accordance with their contracts. Once subject to an unfavourable adjudication decision, a paying party will have difficulty avoiding payment, at least in the short term.