Beck Interiors Ltd V Classic Decorative Finishing Ltd
Technology and Construction Court
Coulson J
12 July 2012
THE FULL TEXT OF THE JUDGMENT OF COULSON J
1. By a sub-contract made in writing on or about 7 February 2011, the claimant, Beck Interiors Limited ("Beck"), engaged the defendant, Classic Decorative Finishes Limited ("CDF"), to carry out internal and external decoration works at 1 Cambridge Gate, London NW1.
2. Disputes arose between the parties and Beck referred their claim against CDF to adjudication. On 11 May 2012, the adjudicator provided a written decision in which he concluded that Beck were entitled to £35,901.45 plus VAT, a total of £43,081.74. Although he also decided that CDF were liable for a further sum in relation to his fees, that matter has been subsequently resolved directly between the adjudicator and CDF, so that Beck's claim in relation to their potential liability for those fees is no longer pursued.
3. The sum of £43,081.74 has not been paid by CDF. Instead, they have raised a defence to that claim. That defence expressly accepts that the adjudicator had the jurisdiction to reach his decision, and raises no challenge on any ground of natural justice. Instead, it is alleged that the sum is not due because, so it is said, Beck owe to CDF the sum of €59,156.23. That sum is said to be due under a final account relating to works carried out by CDF for Beck at Danesmoate House in Dublin.
4. Directions for the resolution of this disputed enforecement were provided by Akenhead J on 13 June 2012. In essence, he required CDF to provide their evidence in response to the claim by 26 June 2012 and that subsequently, if Beck had any further evidence in reply, they were to provide that by 3 July 2012. In fact, Beck chose not to serve any further evidence; instead they rely solely on their original evidence in support of their claim.
5. Akenhead J also ordered that Beck should provide a skeleton argument and all authorities by 2 pm on 11 July 2012 – that is to say, by 2pm yesterday. In fact, Mr Wheater, counsel for Beck, provided his skeleton argument on Monday 9 July in electronic form, and again in hard copy on Tuesday 10 July 2012. Certainly on Tuesday 10 July I received both the hard copy skeleton and a small file of authorities.
6. CDF are not present and are not represented today. They sent an email first thing this morning to complain that Beck had not supplied their material in accordance with the court order. As I have demonstrated, that is an erroneous submission. It is based, I think, on CDF's confusion between Beck's further evidence, which has not been served because there is no such evidence, and Beck's skeleton argument, which was in fact served earlier than the date stipulated by Akenhead J. Other reasons given in the email as to why CDF are not present, principally concerned with the logistics of getting here from Blackpool, cannot justify either the suggested striking out or even an adjournment. This hearing was fixed almost a month ago and no point about logistical difficulties has been raised before.
7. Accordingly, the material set out in CDF's email of this morning is fallacious. It is not a proper explanation for their failure to attend. I am quite certain that, in those circumstances, it is appropriate for the court to go on and consider on its merits this application to enforce the adjudicator's decision.
8. There are three reasons why, in my view, the matters raised by CDF (their argument that they can set-off against the adjudicator's decision the sums they claim due under the separate contract in Dublin) are simply not arguable as a defence to this claim.
9. First, 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. In accordance with the principle first enunciated by His Honour Judge Hicks QC in VHE Construction PLC v RBSTB Trust Co Ltd [2000] 70 Con LR 51, and endorsed by the Court of Appeal in Levolux AT v Ferson Contractors [2003] 86 Con LR 98, to permit a set-off in such circumstances would be to defeat the purpose of the 1996 Housing Grants (Construction and Regeneration) Act. Parliament has decreed that any sums awarded by an adjudicator should be paid without further ado and the courts will, save in unusual circumstances, enforce those decisions. As Chadwick LJ put it in Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2006] BLR 15, "the statutory scheme provides a means of meeting the legitimate cash flow requirements of contractors and their sub-contractors. The need to have the 'right' answer has been subordinated by the need to have an answer quickly."
10. Where the unsuccessful party is claiming a set-off, there are two possible exceptions to that general principle. The first is where the set-off provision in the contract is capable of being construed as giving the unsuccessful party the right to make such a set-off. That is what happened in the Court of Appeal case of Parsons Plastics Ltd v Purac Ltd [2002] BLR 334. However, that argument is plainly not open to CDF in these circumstances, because there was no express set-off provision in the sub-contract at all. There is a withholding notice provision (clause 4.9), but it is in unexceptionable form. In any event, there is no withholding notice here.
11. Thirdly, there is the possible exception that arises in cases where the adjudicator did not order immediate payment, but instead gave a declaration as to the proper operation of the contract, or ordered that the sum due should be paid, but only as part of, and pursuant to, the existing contract machinery. In those cases, such as Shmizu Europe Limited v LBJ Fabrications [2003] BLR 381, it can sometimes happen that, if the contract machinery applies in full, the machinery relating to withholding notices may also operate to permit a set-off and cross-claim. But again, that exception simply does not apply here. The adjudicator plainly ordered the immediate payment of this sum. His decision was in no sense a declaration as to how the contract should be interpreted. On any proper reading of his decision, he wanted the sum paid by CDF to Beck without further ado.
12. Accordingly, there is no reason in this case for the court to take the unusual step of declining to enforce the adjudicator's decision. But even without the particular impetus provided by the adjudication regime, I am of the clear view that the matter raised by CDF could not be an arguable defence to this claim.
13. As I have already noted, there was no set-off provision in this contract. Accordingly, CDF have to rely on their right to equitable set-off. That gives rise to the well-worn argument about the extent to which a party who is claiming a sum due under one contract can use that as a defence to a sum otherwise due on another. There are a number of cases in this area of the law, including Hanak v Green [1958] 2 QB 9 and Dole Dried Fruit v Trustin Kerwood Ltd [1990] 2 Lloyd's Rep 309. They all stress that equitable set-off can only be permitted where the cross-claim is so closely connected with the claim that it would be manifestly unjust to allow the claim without taking into account the cross-claim. Perhaps the best-known summation of the point can be found in the judgment of Lord Denning MR in Federal Commerce & Navigation Limited v Molena Alpha Inc [1978] 1 QB 927, where at page 974H he said:
"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."
14. The cross-claim raised here by CDF, concerning a contract in Dublin, does not arise out of the same transaction as that which lies behind the claim to enforce the adjudicator's decision. There is, in truth, no connection between the claim and the cross-claim, other than the existence of two contracts between the same two parties. These were different contracts, concerned with entirely different works, in two separate countries (and therefore two separate jurisdictions) and in two separate denominations.
15. In those circumstances therefore, it seems to me plain that, even leaving aside the particular rules relating to the enforcement of an adjudicator's decision, the absence of an arguable equitable set-off must also be fatal to CDF's position. There is no equitable set-off here because equity could not possibly require the court to take into account the claim on the separate Irish contract when addressing Beck's claim for summary judgment to enforce the adjudicator's decision in connection with the London contract. The claim and cross-claim cannot be said to arise out of the same or similar subject-matter.
16. For those reasons therefore, I conclude that CDF have no arguable defence to this claim. I therefore give summary judgment pursuant to CPR Part 24 in favour of Beck in the sum of £43,081.74. I invite Mr Wheater to make any further submissions in relation to interest and costs.