Beck Interiors Ltd v Classic Decorative Finishing Ltd

Unsuccessful parties to an adjudication must generally pay the adjudicator’s award without setting off an unrelated claim. The court will permit a set-off only in unusual circumstances, such as where the contract expressly allows it or where the adjudicator’s decision operates within contractual machinery that preserves withholding and cross-claim rights. Equitable set-off also requires a close connection between the claim and cross-claim, such that it would be manifestly unjust to enforce the claim without taking the cross-claim into account. Separate contracts concerning different works, jurisdictions and currencies do not satisfy that test merely because they involve the same parties.

Beck engaged Classic Decorative Finishing Ltd under a London sub-contract. An adjudicator awarded Beck £43,081.74 including VAT. The defendant accepted the adjudicator’s jurisdiction and raised no natural justice challenge, but contended that the award should be reduced or defeated by a €59,156.23 cross-claim under a separate contract for works in Dublin.

The defendant did not attend the enforcement hearing. The court rejected its procedural objections and considered whether the alleged contractual or equitable set-off constituted an arguable defence to enforcement.

1. Enforcement of adjudicator’s decision. The defendant had no arguable defence. The statutory adjudication scheme requires sums awarded by an adjudicator to be paid promptly, and courts will enforce such decisions save in unusual circumstances. Permitting an unrelated set-off would undermine that purpose. The court relied on the principle stated in VHE Construction PLC v RBSTB Trust Co Ltd [2000] 70 Con LR 51, endorsed in Levolux AT v Ferson Contractors [2003] 86 Con LR 98, and the cash-flow rationale described in Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2006] BLR 15.
2. The first possible exception, where the contract contains a provision capable of giving the unsuccessful party a right of set-off, did not apply. Parsons Plastics Ltd v Purac Ltd [2002] BLR 334 illustrated that exception, but this sub-contract contained no express set-off provision and no effective withholding notice.
3. The second possible exception, where payment forms part of contractual machinery rather than requiring immediate payment, also did not apply. The adjudicator had ordered immediate payment, not made a declaration as to contractual operation. The approach illustrated by Shmizu Europe Limited v LBJ Fabrications [2003] BLR 381 was therefore unavailable.
4. Independently, equitable set-off was unavailable. The cross-claim had to be so closely connected with the claim that it would be manifestly unjust to enforce the claim without taking it into account. The Dublin contract concerned different works in a different country and currency, and had no connection with the London adjudication claim. The court applied the principles discussed in Hanak v Green [1958] 2 QB 9, Dole Dried Fruit v Trustin Kerwood Ltd [1990] 2 Lloyd’s Rep 309 and Federal Commerce & Navigation Limited v Molena Alpha Inc [1978] 1 QB 927.
5. Summary judgment was entered for Beck under Civil Procedure Rules 1998, Part 24, in the sum of £43,081.74. Interest and costs were left for further submissions.