Latest News
FK Construction Limited v ISG Retail Limited: A Case Study on Adjudication Enforcement and Set-Off
In this article, we will examine the recent case of FK Construction Limited v. ISG Retail Limited [2023] EWHC 1042 (TCC), where the Technology and Construction Court (TCC) enforced an adjudicator's decision in favour of a subcontractor and rejected the main contractor's attempt to set off the sum awarded against other adjudication decisions between the same parties.
Background
The case involved two projects: Project Barberry and Project Triathlon, where ISG Retail Limited (ISG) was the main contractor and FK Construction Limited (FK) was the subcontractor for roofing and cladding works. The subcontract for Project Barberry was a bespoke contract with a value of £3.4 million.
On 27 September 2022, FK issued its Application for Payment 16 (AFP 16) for £1,691,679.94. ISG did not issue a Payment Notice or make payment, but issued a Pay Less Notice on 28 October 2022, disputing the validity of AFP 16.
FK challenged the Pay Less Notice and referred the dispute to adjudication. On 27 February 2023, the adjudicator, Mr Allan Wood, decided that AFP 16 was a valid payment notice and that ISG's Pay Less Notice was out of time and invalid. He ordered ISG to pay FK £1,691,679.94 plus VAT and interest (the Wood Decision).
ISG did not comply with the Wood Decision and FK brought enforcement proceedings in the TCC for summary judgment
The Issue
The main issue in the enforcement proceedings was whether ISG could set off the sum awarded in the Wood Decision against other adjudication decisions between the same parties.
ISG relied on four other adjudication decisions: three relating to Project Barberry and one relating to Project Triathlon. The most relevant one was the Molloy Decision of 14 April 2023, which determined that the gross valuation of the subcontract for Project Barberry was £3,736,679.72. As ISG had already paid £2,829,941.55 to FK, this suggested that FK was only due another £906,738.20.
ISG argued that it would be unjust to enforce the Wood Decision in full without taking into account the Molloy Decision, which showed that FK had been overpaid by £784,941.74. ISG also sought to set off £66,620.68 that FK owed to ISG under the Triathlon Project.
FK argued that there was no basis for set-off and that the Wood Decision should be enforced in full as a valid and binding adjudication decision.
The Decision
The TCC rejected ISG's argument for set-off and enforced the Wood Decision in full.
The TCC followed the established principles of adjudication enforcement, which state that an adjudicator's decision is binding and enforceable unless it is challenged on grounds of jurisdiction or natural justice. The court also recognised that there may be exceptional cases where it has the discretion to order a set-off or withholding against an adjudicator's decision because of other adjudication decisions affecting the same parties.
However, the court held that this was not such a case and that four tests had to be satisfied for set-off to apply:
- Validity: both decisions had to be valid;
- Finality: both decisions had to be final and binding;
- Mutuality: both decisions had to arise from the same contract; and
- Equality: both decisions had to be for liquidated sums.
The court found that none of these tests were met in this case. In particular:
- The Molloy Decision was not valid because it was based on an erroneous interpretation of the subcontract;
- The Molloy Decision was not final and binding because it was subject to further adjustment in subsequent applications for payment;
- The Molloy Decision and the Triathlon Decision did not arise from the same contract as the Wood Decision; and
- The Molloy Decision and the Triathlon Decision were not for liquidated sums because they were subject to further disputes and challenges.
The court also noted that allowing set-off would undermine the purpose of adjudication, which is to provide a quick and interim resolution of disputes pending final determination by litigation or arbitration. The court said that it would be contrary to this purpose to allow a party to rely on subsequent adjudication decisions to avoid paying an earlier one.
The court therefore granted summary judgment in favour of FK for £1,691,679.94 plus VAT and interest.
Conclusion
This case illustrates the high threshold for set-off in adjudication enforcement proceedings and confirms that an adjudicator's decision will usually be enforced in full unless there are valid grounds to challenge its jurisdiction or natural justice.
The case also highlights the importance of issuing timely and valid payment notices and payless notices in construction contracts, as failure to do so may result in having to pay the full amount claimed by the other party, regardless of any subsequent adjudication decisions.
- The article discusses a recent case in the UK High Court involving a dispute over a construction contract
- The main issue was whether FK Construction Limited (FKC) had validly terminated the contract with ISG Retail Limited (ISG) for non-payment of interim certificates
- The court held that FKC had not complied with the contractual notice requirements and therefore had not validly terminated the contract
