Parsons Plastics (Research & Development) Ltd V Purac Ltd (Part II)
Court of Appeal
Pill, Mummery and Latham LJJ
10 April 2002
The sub-contractor referred a dispute as to its payment entitlement to adjudication. The adjudicator decided that the sub-contract work was not a “construction operation” with the result that it was common ground that the Construction Act 1996 did not apply to the adjudication. The adjudicator nevertheless also made a decision in the sub-contractor’s favour. Shortly after the decision’s issue, the contractor served a contractual notice of its intention to withhold payment of the sum awarded on the grounds that (1) having taken over the remainder of the sub-contract works, it was entitled to deduct from monies otherwise due to the sub-contractor the reasonable cost of completing the works and (2) it had paid to the substitute sub-contractor a greater sum to complete the sub-contract works than had been awarded to the sub-contractor by the adjudicator. The sub-contractor began court proceedings to enforce the adjudicator’s decision. The issue was whether the defence of set-off was available to the contractor.
The sub-contract provided that nothing in the sub-contract, whether expressly, by incorporation or by implication, was in any way to restrict the contractor’s equitable or common law rights of set-off but without prejudice to the generality of this provision, the contractor had the right to set-off against any sum due to the sub-contractor a fair and reasonable sum in respect of any claim(s) (to be) made against the contractor by the employer concerning the sub-contract works.
The Court of Appeal held that the adjudicator’s decision should not be enforced. This was on the basis that the sub-contract provision in effect overrode the (further) provision setting out the contractual procedure to be followed for there to be a valid set-off (with which the contractor had not complied). It did not matter that the decision should be treated as if given under the Act to the extent that the parties intended a swift resolution of disputes.
Whilst the Court of Appeal declined to enforce the adjudicator’s decision where the contract preserved the contractor’s rights of set-off and the Construction Act did not apply, it is generally accepted that a defendant has to serve an effective notice of intention to withhold payment under the Act to prevent enforcement of a decision.