Breyer engaged Pilon to work on a scheme split into two batches: batches 1-25 and batches 26-62. Disputes arose between the parties and Pilon left site. Early the following year, Pilon became the subject of a Company Voluntary Arrangement. Later that year, Pilon issued an interim application in respect of batches 26-62. It was not paid and Pilon commenced adjudication.

The adjudication notice limited the adjudication to the application in respect of batches 26-62. Breyer’s principle defence was that it was entitled to set-off an over-payment on batches 1-25. It had not served withholding notices for this amount but argued it was not required to do so pursuant to the terms of the contract. The adjudicator decided that, as consideration of the alleged over-payment would be outside his jurisdiction, the adjudication was limited solely to batches 26-62.

At enforcement, the judge held that in the absence of an express or implied agreement between the parties that they would be bound by the decision of the adjudicator, the adjudicator’s decision on jurisdiction was not binding.

The adjudicator’s decision on his jurisdiction was incorrect. The adjudicator’s jurisdiction extended to what amount Pilon was entitled to be paid by way of an interim payment. This meant that set-offs could be considered. Further, the adjudicator’s error was deliberate and material, as the set-off represented approximately 71% of the sum awarded. Accordingly, this amounted to a breach of natural justice and the decision would not be enforced. The judge stated that an adjudicator should think very carefully before ruling out a defence merely because there was no mention of it in the claiming party’s adjudication notice:

“It is not uncommon for adjudicators to decide the scope of their jurisdiction solely by reference to the words used in the notice of adjudication, without having regard to the necessary implications of those words … Adjudicators should be aware that the notice of adjudication will ordinarily be confined to the claim being advanced; it will rarely refer to the points that might be raised by way of a defence to that claim. But, subject to questions of withholding notices and the like, a responding party is entitled to defend himself against a claim for money due by reference to any legitimate available defence (including set-off), and thus such defences will ordinarily be encompassed within the notice of adjudication.”

The adjudicator had decided that Breyer was entitled to raise the over-payment defence/cross-claim, regardless of the lack of payment and/or withholding notices. Therefore, this decision was temporarily binding on the parties until finally determined by an arbitrator, in accordance with the provisions of the contract. However, the adjudicator’s decision was not severable, as the dispute referred consisted of only one issue in dispute; what was due to Pilon as a result of its interim application.

In the event that the judge was wrong with regard to the adjudicator’s jurisdiction or the severance point, then he considered that Breyer would be entitled to a stay of execution. At the time the contract was entered into, Pilon’s financial position was good, and therefore this was not a case where it could be said Breyer were contracting with a party that it knew to be financially weak. Further, Pilon’s poor financial position was not caused by the non-payment of the sums said to be due by Breyer. There were far higher debts owed to other creditors. Finally, the likelihood of repayment by Pilon, should it be necessary following arbitration, was low.