Set-off and adjudication enforcement: a practical reminder for construction professionals

For construction professionals managing construction contracts, payment disputes can move quickly. Adjudication is designed to provide a fast, temporarily binding decision so that cash continues to flow while the wider dispute is resolved. This article explains, in practical terms, why a party that loses an adjudication will usually be expected to pay first and argue later, rather than relying on a separate claim or set-off as a defence to avoid payment.

The point was considered in Squibb Group Ltd v Vertase FLI Ltd [2012] EWHC 1958 (TCC), a case concerning whether an unsuccessful party could use a later withholding notice and alleged set-off sums to resist enforcement of an adjudicator’s award.

What does “set-off” mean?

Set-off is where one party says that money it owes should be reduced because the other party owes it money too. In construction contracts, this might relate to delay, defects, incomplete works or other alleged losses. The question in this case was whether that kind of deduction could be used after an adjudicator had already decided that a sum should be paid.

Facts

Vertase appointed Squibb under a sub-contract to carry out demolition and asbestos removal works. The works were delayed by a few months, and the parties disagreed about who was responsible for that delay.

Squibb referred the dispute to adjudication, seeking an extension of time and additional costs arising from the delay. Vertase argued that Squibb was largely responsible and that no further payment should be made.

The adjudicator found in favour of Squibb and ordered Vertase to pay £167,531.05 for additional delay-related costs. Vertase did not pay. Instead, after the adjudication, it served a withholding notice seeking to deduct sums for liquidated damages and other alleged issues with the works.

Squibb applied for summary judgment to enforce the adjudicator’s decision. Vertase resisted enforcement, arguing that its withholding notice and set-off claims meant it should not have to pay the full amount awarded.

The question for the Court

Could Vertase rely on a later withholding notice or set-off to avoid paying the sum awarded by the adjudicator?

The Court’s decision

The Court said no. As a general rule, a party that loses an adjudication cannot avoid payment by raising a later set-off or withholding notice. Allowing that would undermine the purpose of adjudication, which is to provide a quick and enforceable decision on a construction payment dispute.

The Court recognised that there may be limited exceptions, for example where the contract clearly allows set-off in a way that is consistent with adjudication enforcement. However, those exceptions are narrow and did not apply here.

Squibb’s application for summary judgment was therefore successful, and Vertase was ordered to pay the £167,531.05 awarded by the adjudicator.

Why this matters for construction professionals

The case is a useful reminder that adjudication decisions are usually enforced quickly, even if the losing party believes it has other claims. Construction professionals should therefore treat adjudication as a process with immediate cash-flow consequences, not simply as another stage in a longer dispute.

In practical terms, parties should check the contract carefully, make sure any payment or withholding notices are served on time, and take early advice before relying on set-off as a defence to enforcement. A claim for delay, defects or other losses may still be pursued, but it will not usually stop an adjudicator’s award from being paid in the meantime.

To access the full judgment, please see: Squibb Group Ltd v Vertase FLI Ltd [2012] EWHC 1958 (TCC).

If you would like further information about adjudications, payment notices or adjudication enforcement proceedings, please contact a member of our construction team.