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In the case of Beck Interiors Ltd v Classic Decorative
Finishing Ltd, [2012] EWHC 156 (TCC) Mr Justice Coulson,
enforced an adjudicator's decision, refusing to allow set-off
of sums allegedly arising under an unrelated project in a different
jurisdiction.
The Facts
On or around 7 February 2011, Classic Decorative Finishing
Limited ("CDF") were engaged by Beck Interiors Ltd
("Beck") under a subcontract to carry out internal and
external decoration works at 1 Cambridge Gate, London.
Disputes arose between the parties during the course of the
works and Beck referred its claim to adjudication. The adjudicator
issued his decision on 11 May 2012 finding that Beck was entitled
to the sum of Ł35,901.45 plus VAT from CDF.
CDF refused to pay. In its defence CDF argued that the sum was
not due as Beck owed CDF the sum of EUR 59,156.23 under a final
account for works undertaken by CDF for Beck at Danesmoate House in
Dublin.
Beck issued enforcement proceedings. CDF did not attend the
hearing and cited failure of Beck to comply with TCC directions,
noted by the court to be incorrect, and logistical difficulties as
the reason for non attendance. The TCC determined that in the
circumstances it was proper and appropriate to proceed to consider
the merits of Beck's application for enforcement.
The Issue
Was CDF entitled to set-off against the adjudicator's
decision sums they claimed were due under a separate contract in
Dublin? In the absence of a contractual right to set-off, did CDF
have any equitable set-off rights?
The Decision
Mr Justice Coulson held that the matters raised by CDF were not
an arguable defence to Beck's claim. The Judge reached his
conclusion for the following reasons:
The general principle is that it is rare for the court to
permit the unsuccessful party in an adjudication to set-off against
the sum awarded by the adjudicator some other separate claim. To
permit set-off in such circumstances would defeat the purpose of
the 1996 Housing Grants (Construction and Regeneration) Act.
Reference was made to VHE Construction PLC v RBSTB Trust Co Ltd
[2000], as endorsed by the Court of Appeal in Levolux AT v
Ferson Contractors [2003];
There were two possible exceptions to this general principle,
firstly where there were express set off provisions in the
contract, and secondly wherethe adjudicator did not order immediate
payment, instead giving a declaration as to the proper operation of
the contract. Reference was made to Shmizu Europe Limited v LBJ
Fabrications [2003];
Neither of the exceptions applied in the circumstances of the
current proceedings. There was no express contractual set-off
provision in the subcontract and the adjudicator had
"wanted the sum paid by CDF to Beck without further
ado".
In the absence of any express right to set-off, consideration
was given to whether CDF had any right of equitable set-off.
Reference was made to the Judgment of Lord Denning MR in
Federal Commerce & Navigation Limited v Molena Alpha
Inc [1978] 1 QB 927 page 974 summarising the point:
It is not every cross-claim which can
be deducted. It is only cross-claims that arise out of the same
transaction or are closely connected with it. It is only
cross-claims which go directly to impeach the plaintiff's
demands, that is, so closely connected with his demands that it
would be manifestly unjust to allow him to enforce payment without
taking into account the cross-claim."
CDF's cross claim concerned a contract in Dublin and did
not arise out of the same transaction that lay behind the claim to
enforce the adjudicator's decision. Further, they were
different contracts, entirely different projects, in two separate
countries (and therefore two separate jurisdictions) and in two
separate currencies. CDF did not therefore have any entitlement to
equitable set-off.
Comment
The decision reached by Mr Justice Coulson is not unexpected and
emphasises the difficulty in relying on set-off as a defence to
enforcement proceedings. Mr Justice Coulson also sets out the
general principles of equitable set-off. The decision is in line
with Mr Justice Coulson's findings in the case of Squibb
Group Limited v Vertase FLT Ltd [2012] EHWC 1958 (TCC) handed
down a few days earlier.
This article is one of a series contributed by Fenwick Elliott
to the Building website. To see further articles in this series
please go to
www.fenwickelliott.com/legal-briefing.
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