JPA Design and Build Ltd v Sentosa (UK) Ltd

An adjudicator’s decision awarding payment may be set off against a second adjudicator’s decision establishing the other party’s entitlement to liquidated damages, provided the second decision determines that entitlement. A finding that the sum cannot be withheld under the contract does not prevent a later set-off against a judgment enforcing another adjudication decision.

A stay of execution may be ordered where the successful party is probably unable to repay the judgment sum. The court must consider whether its financial position was materially the same when the contract was made or was caused by the paying party’s withholding of money. A contractual obligation to repay the judgment sum imminently is an additional special circumstance supporting a stay.

JPA Design and Build Limited obtained an adjudicator’s decision requiring Sentosa (UK) Limited to pay an advance payment of £300,000, together with interest. Sentosa sought to enforce a second adjudicator’s decision awarding it £180,000 in liquidated damages and to set that sum off against JPA’s judgment.

Sentosa also sought a stay of execution because JPA was in a parlous financial position and was unlikely to repay the advance payment when the final account was resolved. The issues were whether the liquidated damages could be set off and whether there were special circumstances justifying a stay under RSC Order 47.

1. Sentosa was entitled to set off £180,000 against the £349,784.48 payable under the first adjudication decision. The second adjudicator had determined JPA’s entitlement to an extension of time and had also determined that Sentosa had a right to claim liquidated damages for the remaining culpable delay. The reference to a right to claim payment did not make the determination provisional.

2. The second adjudicator’s decision was temporarily binding. JPA could not reopen its entitlement to a full extension of time by relying on material and arguments already rejected in the adjudication: Macob Civil Engineering Ltd v Morrison Construction Ltd [1999] BLR 93.

3. The adjudicator’s conclusion that Sentosa had no right to withhold or deduct liquidated damages concerned the absence of a valid withholding notice. It did not prohibit a set-off between the two adjudication judgments. Judgments or orders for payment may be set off to prevent absurdity or injustice, and the same principle applied here: Edwards v Hope [1885] 14 QBD 922; Reid v Cupper [1915] 2 KB 147.

4. Judgment was therefore entered for JPA in the net sum of £169,784.48. The principles governing stays in adjudication enforcement proceedings required speedy enforcement, but recognised the probable inability of the successful party to repay the judgment sum as a possible special circumstance. The relevant principles were applied from Wimbledon Construction Co 2000 Limited v Derek Vego [2005] EWHC 1086 (TCC).

5. JPA’s financial position had materially deteriorated since the contract was made, and its difficulties were not caused by Sentosa’s failure to pay the £300,000. Neither recognised exception to the usual approach was therefore engaged. JPA’s financial position independently justified a stay.

6. There was a further and separate reason for a stay. Under clause 4.6 of the contract, the £300,000 was unequivocally repayable to Sentosa when the final account was resolved. The final account should already have been underway, and JPA could not rely on its own delay to improve its position. It would be unjust and inequitable to require payment where there was an overwhelming risk that the contractual repayment would not be made. Execution was stayed.