1    On or around 28 September 2021 lSG Retail Limited (“ISG”) engaged FK Construction Limited (“FK”) under a bespoke subcontract to carry out roofing and cladding works on a project in Avonmouth, Bristol known as “Project Barberry”, on which ISG is the main contractor. On 27 September 2022, FK issued its Application for Payment 16 (“AFP 16”) for the amount of £1,691,679.94. ISG did not issue a Payment Notice or make payment but issued a Pay Less Notice on 28 October 2022. 

2    On 19 January 2023 FK referred the dispute over the validity of ISG’s Pay Less Notice to adjudication. The adjudicator issued his decision on 27 February 2023, determining that AFP 16 was a valid payment notice and that as ISG failed to issue a Payment Notice, the Pay Less Notice was invalid as it was out of time. Accordingly, the adjudicator ordered ISG to pay £1,691,679.94 plus VAT and interest at a daily rate of £289.67 from 25 October 2022 (known as the “Wood Decision”).

3    A number of other adjudication decisions have arisen between the parties in respect of Project Barberry and another project known as “Project Triathlon”. One of the decisions reached in respect of Project Barberry is relevant to these proceedings, known as the “Molloy Decision” of 14 April 2023. This Decision, made shortly before the hearing in these proceedings, held that the gross valuation of Contract at 28 February 2023 was £3,736,679.72. As ISG had already paid £2,829,941.55 to FK this suggested that FK was only due another £906,738.20. The decisions in respect of Project Triathlon are not relevant to these proceedings individually, but it is relevant that as a result of these, a total of £66,620.68 was due to ISG from FK. 

4    FK brought enforcement proceedings in the High Court for the full amount of £1,691,679.94 plus VAT and interest and applied for summary judgment. FK’s argument was straightforward; it put forward that, as its claim was for the enforcement of a valid adjudication decision (a point that ISG did not contest, ISG had no real prospect of successfully defending the claim. Further, FK put forward that there was no compelling reason to dispose of this case at trial.

5    ISG did not contest the enforceability of the Wood Decision and did not put forward arguments on Natural Justice of Jurisdiction. Instead, it argued that the sum owed should be set off against the valuation in the Molloy Decision and the sums owed to ISG under the decisions in Project Triathlon. In effect, the result of this would have been reduce the sum owed to FK to the £908,738.20 outstanding in accordance with the gross valuation of the Molloy Decision and, if offset against Project Triathlon was permitted, reduce the sum owed to £849,117.52.

6    The judge declined to exercise her discretion to order a set-off. In respect of the Molloy Decision, she applied the guidance of Akenhead J in HS Works Ltd v Enterprise Managed Services Ltd [2009] EWHC 729 (TCC), setting out that set-off requires (1) separate valid adjudication decisions, (2) capable of being enforced or given effect and (3) separate proceedings before the Court. ISG’s argument failed on several of these counts. No separate proceedings had been issued in respect of the Molloy Decision. Accordingly, the Court was unable to determine whether this decision was valid, or whether it was enforceable. The judge also commented that even if proceedings had urgently been commenced in respect of the Molloy Decision, this would not have changed the position, as the proceedings would not have been dealt with simultaneously, as the judge considered that the fact that both enforcement proceedings were before Akenhead J at the same time was key to his willingness to order set-off in HS Works. The judge also stressed the importance of not encouraging the use of set-off as a means to defeat otherwise legitimate enforcement proceedings. In respect of the decisions concerning Project Triathlon, she applied much the same reasoning, as no enforcement proceeding were taking place in respect of these decision, and, furthermore, one of these decisions had been subject to a jurisdictional challenge. Accordingly, the judge held that, both potential set-offs having been unsuccessful, FK was entitled to summary judgment for the full amount claimed, and ISG was required to pay £1,691,679.94 plus VAT and interest to FK.

7    This judgment particularly reinforces the established position on when and in what manner set-off between adjudication decisions may take place. It highlights that the enforcement must not only be before the same court simultaneously, they must also be determined by said court in the same proceedings. This keeps the scope for set-off deliberately narrow. In light of this judgment, it is also highly unlikely that set-off of a decision concerning an entirely separate project to the decision before the Court will be ordered. Finally, as a general point, this reflects the Courts’ view of set-off as a means of managing cash flow between parties, meaning that the use of set-off in isolation purely as a means of defending proceedings is unlikely to succeed.