The High Court has upheld an adjudication award made to a construction firm following a contract dispute involving allegations of defective work.
The case involved Davis Construction (South East) Ltd v Sanzen Investments Ltd.
Davis had been engaged by Sanzen to construct 25 residential units under a JCT design and build contract. Clause 9 provided that if any dispute went to adjudication, the statutory scheme for construction contracts under the Housing Grants, Construction and Regeneration Act 1996 would apply.
A dispute arose about the sum due on the final account, so Davis referred the matter to adjudication in March 2021.
In February 2021, Sanzen had issued a protocol letter of claim referring to a defect in relation to escaped water, but in its response to the adjudication in April, it had not raised any issue as to the quality of the work.
The adjudicator issued a decision in May requiring Sanzen to pay Davis around £80,900 and the costs of the adjudication.
Sanzen issued a counterclaim seeking sums £200,000 for several defects. Davis issued a claim to enforce the adjudication award in June.
Sanzen submitted that the application should be adjourned pending determination of its counterclaim or dismissed because of the substantial set-off potentially exceeding the adjudication award.
The issue was whether the set-off was permissible under the contract or whether the statutory scheme, and its “pay now, argue later” mechanism, which sought to maintain cash‐flow during construction projects, prevailed.
The court found in favour of Davis. It held that, in general, an unsuccessful party to an adjudication could not seek to avoid the result of that adjudication by relying on the right to set-off any other claims.
Where there were subsequent cross-claims, the right course was for the losing party to comply with the adjudicator’s decision and not withhold payment on the ground of its anticipated recovery in a further claim.
It was puzzling that Sanzen had not sought to raise already-identified defects as a defence in the adjudication proceedings. It could not now resist the judgment award on the basis of a defence it had not raised before the adjudicator.
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Davis Construction (South East) Ltd v Sanzen Investments Ltd
Queen’s Bench Division (Technology & Construction Court)
11 July 2021
Judge Michael Eyre QC