Adjudication: Lame Submissions, Indemnity Costs and Set-Off
This case concerns an adjudicator’s decision issued on 7 December 2020. The adjudicator found in favour of Faithdean plc, ordering Bedford House Ltd, the employer, to repay deductions of around £1.5 million.
No payment was made to Faithdean and enforcement proceedings were issued in January 2021. Bedford did not put forward a defence. Instead, it argued it could not pay as it wished to know the exact amount in order to make a single payment to Faithdean. A small amount of liquidated damages was in dispute, rendering the exact amount due uncertain. Bedford also argued that its non-payment did not matter because Faithdean would be compensated by interest.
Faithdean’s position was that Bedford should have made immediate payment, as it should have known there was no substantive defence beyond the small amount of liquidated damages in dispute. Faithdean therefore sought costs on an indemnity basis. This came before the Technology and Construction Court (TCC) as Faithdean plc v Bedford House Ltd No 1  EWCH 961 (TCC) (Faithdean No 1).
Separately, Bedford claimed that it could set off against the repayable deductions a relatively small amount of liquidated damages it claimed it was owed. The court answered this question separately in Faithdean plc v Bedford House Ltd No 2  EWCH 962 (TCC) (Faithdean No 2).
Faithdean No 1: "lame submission" and indemnity costs
The usual basis of assessment of a party’s costs of litigation is the standard basis. Here, the court will only allow costs that are proportionate to the matters in issue. In comparison, indemnity costs may be awarded upon the request of a party where there is some circumstance that takes the case “out of the norm” (Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson  EWCA Civ 879). Indemnity costs are penal in nature and there is no requirement for them to be proportionate, so they represent a higher recovery than standard costs.
The court, referring to Bedford’s “lame submission” that it wanted to make only one payment, accepted Faithdean’s position that Bedford should have made an immediate payment. The court held that Bedford “knew or ought to have known they had no defence to the claim to enforce the adjudicator’s decision”.
Faithdean No 1 is a reminder that seeking to avoid paying an adjudicator’s award for a tenuous or no reason, is likely to lead to costs being payable on an indemnity basis in any enforcement proceedings that follow.
Faithdean No 2: setting off damages
The question before the court in Faithdean No 2 was whether Bedford was entitled to set off an amount of liquidated damages of around £30,000 against the amount due to Faithdean.
The general rule is that it is not permissible to set off against an adjudicator’s decision. There are only limited exceptions to this principle.
Bedford relied on Balfour Beatty Construction v Serco Ltd  EWHC 3336 (TCC),  12 WLUK 680, where it was held that that a claim for liquidated damages for delay is one of the limited exceptions, provided that proper notice has been given.
The court was not able to apply the ‘Balfour Beatty’ exception. Bedford’s case relied on an earlier adjudicator’s decision from January 2020 as evidence that it was entitled to recover the liquidated damages sum, which the court had not seen. There was also no evidence that the necessary notice had been given under the contract. Thus, the liquidated damages were not set off against the amount due to Faithdean.
Faithdean No 2 is a reminder that is only permissible to set off against an adjudicator’s decision in limited circumstances, and with sufficient evidence.
What can we learn from these cases?
Both Faithdean No 1 and Faithdean No 2 highlight the potential pitfalls of attempting to resist an adjudicator’s decision without sufficient grounds and evidence to do so. Both decisions add to the abundant case law that shows the courts will strive to give effect to decisions of adjudicators, and that challenges are only successful in limited circumstances.
For further information on this or a related matter, please contact Iain Drummond, Partner in our property and infrastructure disputes team, at [email protected], or get in touch with your usual Shepherd and Wedderburn contact.
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