Interserve Industrial Services Ltd v Cleveland Bridge UK Ltd

Adjudication decisions under the Housing Grants, Construction and Regeneration Act 1996 are intended to secure immediate cash flow. Subject to special circumstances, a party ordered to pay cannot withhold payment or set off an anticipated or subsequently obtained recovery in a different adjudication. A stay of execution should not ordinarily be granted on the same grounds, since it would produce the practical effect of a set-off. An adjudicator must act within the jurisdiction conferred by the contract. Where the contract requires the parties to share adjudication fees equally, an adjudicator has no jurisdiction to apportion those fees differently. An unauthorised fee direction may be severed from an otherwise enforceable decision.

Interserve sought summary judgment enforcing an adjudicator’s award of £1,368,270 in adjudication two. Cleveland had not paid, relying on a claim pursued in adjudication three, in which it expected to recover an equivalent or larger sum. Cleveland also sought a stay of execution.

The parties’ subcontract incorporated the Model Adjudication Procedure but expressly provided that each party should bear its own costs and expenses and that adjudicator’s fees should be shared equally. The issues were whether Cleveland could set off its adjudication-three recovery or anticipated recovery, whether execution should be stayed, and whether the adjudicator had jurisdiction to order Cleveland to pay 80 per cent of his fees.

1. Set-off. The general common-law defence of set-off applies to building-contract claims, subject to the statutory scheme. However, sections 108, 110 and 111 of the Housing Grants, Construction and Regeneration Act 1996 promote prompt payment and restrict withholding. Where parties engage in successive adjudications concerning their current rights and remedies, the losing party must, absent special circumstances, comply with each decision. It cannot withhold payment because it reasonably expects to recover an equivalent or larger sum in a future adjudication.
2. Applying that principle, Cleveland was required to pay the adjudication-two award by 28 November 2005. Its anticipated recovery in adjudication three did not justify withholding payment. The adjudication-three decision did not alter the position because Interserve’s payment obligation under it was not due until 17 February 2006. Cleveland was also unable to set off its actual adjudication-three recovery. Permitting successive awards to be treated merely as entries in a running balance would defeat the cash-flow purpose of the statutory scheme.
3. Stay of execution. The length and cost of adjudication two, the recovery obtained in adjudication three, the Interim Funding Agreement, asserted absence of prejudice, and Cleveland’s willingness to pay money into court did not justify a stay. A stay would have substantially the same practical effect as allowing set-off. The approach in Winchester Cigarette Machinery Ltd v Payne supported refusing the stay. The exceptional order made in William Verry Ltd v North West London Communal Mikvah was materially distinguishable.
4. Adjudicator’s fees. Clause 10(b) of the subcontract qualified the incorporation of the Model Adjudication Procedure and required equal sharing of the adjudicator’s fees and expenses. The adjudication referral did not include any dispute about fee apportionment. The adjudicator therefore had no jurisdiction to order Cleveland to pay 80 per cent. Subsequent correspondence could not enlarge that jurisdiction, and clause 18 did not override clause 10(b). That part of the decision was severable.
5. Summary judgment was granted for the sums due under adjudication two, excluding the adjudicator’s unauthorised fee direction. The parties remained bound to share the adjudicator’s fees and expenses equally.