FK Construction Limited v ISG Retail Limited

Adjudicators’ decisions requiring payment should generally be enforced promptly and without set-off or withholding. A limited exception may arise where two valid and enforceable decisions between the same parties are considered together in separate enforcement proceedings, and the court must give effect to both.

A later adjudication decision cannot justify withholding where its validity or enforceability has not been determined, separate enforcement proceedings have not been brought, or the later decision does not itself permit a balancing adjustment. The court’s discretion must not undermine the statutory “pay now, argue later” policy.

FK sought summary judgment enforcing an adjudicator’s decision requiring ISG to pay £1,691,679.94 arising from a payment application under a construction sub-contract. ISG accepted that the decision was enforceable in principle but sought a set-off or withholding based on other adjudication decisions concerning the same project and a separate project.

The principal proposed adjustment arose from a later valuation decision whose validity was challenged and which had not been the subject of separate enforcement proceedings. ISG also relied on the net effect of three decisions concerning another project. The issue was whether the circumstances fell within the narrow discretionary exception permitting set-off against an adjudicator’s award.

1. Disposition. FK was entitled to summary judgment enforcing the adjudicator’s decision for £1,691,679.94 plus interest. ISG’s arguments on set-off and withholding were rejected.
2. The general rule, reflected in YCMS Ltd v Grabiner, Thameside Construction Co Ltd v Stevens and Interserve Industrial Services Ltd v Cleveland Bridge UK Ltd, is that a valid adjudication decision directing payment must be complied with promptly. A party cannot withhold payment merely because it expects to recover money in a later adjudication.
3. The recognised discretionary exception identified in HS Works Ltd v Enterprise Managed Services Ltd requires the court to consider whether both decisions are valid, whether both can be enforced or given effect to, and whether separate proceedings have been brought to enforce each decision. The court must then determine the appropriate procedural form of enforcement.
4. The exception did not apply to the later valuation decision. Its validity and enforceability could not be determined on the application because FK had raised a jurisdictional challenge. No separate enforcement proceedings had been issued. The court therefore had no proper basis to give effect to it by set-off or withholding.
5. The same reasoning defeated reliance on the decisions concerning the separate project. One decision was subject to a jurisdictional challenge, no separate enforcement proceedings had been brought, and the proposed cross-project set-off was novel. The court did not determine whether such a set-off could ever be permissible.
6. Even if a discretion existed, it would not have been exercised. The enforcement order was not predicated on set-off, the later valuation had not been used to advance an overpayment claim, and withholding would undermine the policy of the Housing Grants, Construction and Regeneration Act 1996 and the Scheme.
7. The existence of pending Part 8 proceedings, alleged tactical serial adjudications, or the possibility of an eventual overpayment did not provide a ground to resist enforcement.