R&C were engaged by Shaylor under a sub-sub-contract (“the Subcontract”) to carry out mechanical and electrical works at a hospital in Walsall. The Subcontract contained a ‘pay when certified’ provision (clause 21.8(b)). The main contractor was Ashley House PLC. Under the main contract between Ashley House and Shaylor (“the Main Contract”), the issue of a final certificate was a pre-condition to R&C’s right to payment.

By November 2011, a dispute had arisen between the parties regarding R&C’s financial and other entitlements under the Subcontract. On 15 November 2011, R&C referred the dispute to adjudication.

The adjudication was conducted on the basis of written submissions. R&C argued that time was at large and sought damages for delay, together with the determination of its final account. Shaylor argued that R&C had failed to complete by the date for completion and sought to recover damages under the Subcontract for delay.

The adjudicator determined that:

1. time was at large and that the 39 weeks taken by R&C to complete the Subcontract Works was not a reasonable time because R&C was responsible for at least 4 weeks of delay;
2. Shaylor's cross claim for delay was based on the provisions in the Subcontract relating to the time for completion (rather than as if time was at large) and so Shaylor had failed to demonstrate any identifiable loss attributable to the 4 weeks delay for which R&C was responsible;
3. the final Subcontract sum was £1,495,034, of which £196,963 (plus VAT) remained outstanding and due to R&C. However, in view of the ‘pay-when-certified’ provisions of clause 21.8, this sum was not yet payable.

R&C made a Part 8 application seeking a declaration for immediate payment of the £196,963 (plus VAT) despite the fact that the adjudicator had directed that it was not to be paid forthwith. R&C argued that the contractual mechanism concerning certification under the Main Contract had broken down so it was no longer possible for Ashley House to issue a final certificate (which was a pre-condition to R&C’s right to payment). R&C argued that since the pre-condition was a nullity, it was entitled to immediate payment of the sum found due by the adjudicator.

The issues before the Judge were:

1. Had the contractual mechanism in relation to certification in the Main Contract broken down with the result that it was no longer possible to issue a final certificate under the Main Contract?
2. If so, were R&C entitled to immediate payment of the final certificate as determined by the adjudicator?
3. If the contractual machinery had not broken down, was R&C entitled to final payment without any deduction or set off?

The Judge rejected R&C’s application and held that:

1. in the absence of evidence regarding the position between Shaylor and Ashley House, it could not be inferred that the contractual machinery of the Main Contract had broken down;
2. accordingly, the issue of whether R&C were entitled to immediate payment of the final contract sum as determined by the adjudicator did not arise;
3. there was nothing preventing Shaylor setting off against the sum found due by the adjudicator any sum that it would have been entitled to set off under clause 21.8 of the Subcontract. The judge referred to Shimizu Europe Ltd v LBJ Fabrications Ltd [2003] EWHC 1229 (TCC) in reaching this conclusion. The adjudicator never determined whether Shaylor had a valid claim for delay in a time at large situation because Shaylor had advanced its delay claim on that basis. Therefore, Shaylor was not seeking to exercise a right of set off or counterclaim in the enforcement proceedings; instead it was seeking to exercise its contractual right which, in the judge’s view, had been expressly preserved by the adjudicator’s decision itself.

In his conclusion, the Judge made it clear that nothing in his decision was intended to affect the binding nature of the adjudicator’s finding that the amount of the final payment under the Subcontract was £196,963 (plus VAT). Unless and until the dispute was finally resolved by litigation (or arbitration), the adjudicator’s findings remained binding on the parties.