A recent decision in FK Construction Ltd v. ISG Retail Ltd [2023] EWHC 1042 (TCC) provides a useful reminder that limited circumstances apply for set-off to arise in adjudication enforcement.

ISG Retail Ltd (ISG) engaged FK Construction Ltd (FK) to carry out roofing and cladding works on Project Barberry and works in relation to a new logistics and distribution facility on Project Triathlon. Various disputes arose between the parties and a series of adjudications commenced (four on Barberry and three on Triathlon). Once concluded, neither party observed any of the adjudicators’ decisions.

FK attempted to enforce one of the adjudicators’ decisions in order for ISG to pay it £1.6 million (the Wood Decision). However, this was resisted by ISG which claimed that valid set-off had arisen from the other adjudicators’ decisions (the Malloy Decisions) and the sums due under the three decisions on Triathlon. FK then applied to the court for a summary judgment and requested that the court enforced the Wood Decision.

Mrs Justice Joanna Smith in the TCC rejected ISG’s claim and considered the applicable principles that may give rise to set-off in adjudication enforcement proceedings. When considering the claim, Mrs Justice Smith set out the limited circumstances where resisting a summary judgment would be successful due to set-off. In HS Works Ltd v. Enterprise Managed Services Ltd [2009] EWHC 729 (TCC), Mr Justice Akenhead formulated four steps that the court considered before making a decision to allow a set-off. Applying these steps, Mrs Justice Smith considered that:

• ISG could not resist the application as the court was unable to determine the validity of the Malloy Decisions against the Wood Decision. As ISG fell at this ground, it was unnecessary to consider the next steps.
• However, if the court could consider that both the Wood Decisions and Malloy Decisions were valid but one or the other was not capable of being enforced, then set-off does not arise.
• If both claims are capable of being enforced, the court should enforce them, provided that separate proceedings had been brought by each party to enforce a decision. ISG did not issue separate proceedings to enforce the Malloy Decisions.
• The court has discretion as to how each decision is enforced and whether to permit a set-off or withholding. Mrs Justice Smith concluded that, on this occasion, the court did not have discretion as the facts of this case were not able to be applied to the circumstances envisaged by HS Works Ltd v. Enterprise Managed Services Ltd.

It remains to be seen whether the court considers it appropriate that an adjudication decision in relation to a construction project can be set off against an adjudication decision in relation to another construction project. What is clear from Mrs Justice Smith’s decision is that there are very limited circumstances where a court will permit set-off when enforcing adjudication proceedings. In any event, where a party wishes to enforce an adjudicator’s decision against another adjudicator’s decision, a party must issue separate proceedings before the court can consider if one decision can be set off against another.

This article was originally written and published on the internet by Dentons.

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