UK: Can a Losing Party in an Adjudication Withhold Payment on the Basis That it Expects to Recover an Equivalent or Larger Sum in a Subsequent Adjudication?

Interserve Industrial Services Ltd v Cleveland Bridge UK Ltd was an adjudication enforcement case heard before Mr Justice Jackson.

The parties were engaged on works to refurbish and strengthen the Tinsley viaduct. Disputes arose and there were a series of adjudications carried out in accordance with the CIC Model Adjudication procedure. Adjudication number 2 lasted for some 21 weeks. On 24 November 2005, the Adjudicator held that Interserve's works had been delayed for 38.8 weeks. Of this, 12.8 weeks was attributable to Interserve and 26 weeks to Cleveland. In addition, the Adjudicator ordered that Cleveland pay Interserve the sum of £1.35 million.

Cleveland did not pay. As the extension of time award expired on 27 April 2005, it claimed substantial loss and expense and/or damages for the period 1 May to 31 October 2005. Interserve brought enforcement proceedings commencing on 6 December 2005. The application for summary judgment was held on 3 February 2006. Judgment was given on 6 February 2006.

However, in the interim, on 22 December 2005, Interserve sent a letter of claim to Cleveland claiming further extensions of time and additional loss/or expense. In addition, on 6 January 2006, Cleveland served its own adjudication notice. The Interserve claims were not part of this adjudication.

At midday on 3 February 2005, midway through the enforcement application, the Adjudicator's decision in adjudication number 3 was delivered. Interserve was entitled to a further extension of time until 1 June 2005 but was held to be responsible for any delays which occurred after that. Therefore Interserve's liability to Cleveland was held to be some £1.4 million. This was due to be paid by 17 February 2006.

Notwithstanding this, Interserve submitted they were entitled to an immediate judgment on the sums awarded in adjudication number 2 which ought to have been paid by 28 November 2005.

Cleveland said that the sums awarded in adjudication number 3 ought to be set off against the Interserve award. Alternatively, there should be a stay of execution pending enforcement of the third adjudication.

Mr Justice Jackson specifically agreed with the conclusions of HHJ Gilliland QC in Gleeson v Devonshire Green and McLean v The Albany Building where the Judge held that payment ordered by an adjudicator could not be withheld on the basis of a claim which accrued after the adjudication had commenced and that a party could not set off a claim for damages against an adjudication decision.

Here, a decision had been given in the second adjudication in November 2005. At the end of every adjudication, unless the contract says otherwise or there are some other special circumstances, the losing party must comply with the adjudicator's decision. The losing party cannot withhold payment on the basis of an anticipated recovery in a future adjudication based upon different issues. Cleveland should have paid on 28 November 2005. That situation had not been changed by the decision in the third adjudication. Payment in that adjudication was required on or before 17 February 2005. There was no obligation to pay at the time the enforcement decision was given.

Mr Justice Jackson said that if the existence of a claim could be relied upon as a reason to withhold payment, then you may have a situation where there would be a series of consecutive adjudications with the result that no adjudicator's decision is implemented. Each award would take its place in the running balance between the parties.

Accordingly the answer to the question as to whether a losing party could withhold payment on the basis that it expected to recover an equivalent or larger sum in a subsequent adjudication was no.

Therefore, if you do think you have a cross-claim, you must start you own adjudication as quickly as possible.

This article was taken from the latest issue of the Fenwick Elliott Dispatch, a monthly newsletter which summarises recent key developments relating to contentious and non-contentious construction law issues. To see the current issue please visit www.fenwickelliott.co.uk.

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