Serco engaged Balfour Beatty to design, supply, install and test 104 variable message signs on motorways in England. A major source of delay was the Secretary of State’s decision to implement a procedure for environmental impact assessments pursuant to the Highways Act 1980. The Adjudicator awarded Balfour Beatty an extension of time in respect of delays caused by virtue of the environmental impact assessments, and the sum of £620,664 plus VAT.

Serco refused to pay on the basis that even taking into account the extension of time, the work was still not practically completed and that Serco would be entitled to liquidated damages for the period after the extension of time until the work was completed and that sum would exceed any amount payable to Balfour Beatty.

Mr Justice Jackson reviewed VHE Construction v RBST Co. Limited [2000] BLR 187, David MacLean Housing Contractors Limited v Swansea Housing Association Limited [2002] BLR 125 and Ferson Contractors Limited v Levolux AT Limited [2003] BLR 118 and from those cases derived two principles of law (paragraph 39):

“(1) Where it follows logically from an adjudicator’s decision that the employer is entitled to recover a specific sum by way of liquidated and ascertained damages, then the employer may set-off that sum against monies payable to the contractor pursuant to the adjudicator’s decision, provided that the employer has given proper notice (insofar as is required).

(2) Where the entitlement to liquidated and ascertained damages has not been determined either expressly or impliedly by the adjudicator’s decision, then the question whether the employer is entitled to set-off liquidated and ascertained damages against sums awarded by the adjudicator will depend upon the terms of the contract and the circumstances of the case.”

He concluded that the key question to ask was whether the extension of time had been finally determined (as in MacLean) or whether the question had been left open as to what the extension of time might be due beyond 7 June 2004. He concluded that the question had been left open, and therefore following Ferson Serco was not entitled to set-off the liquidated damages. He held that Balfour Beatty was entitled to summary judgement for the amount of the Adjudicator’s decision.