Adjudication
A Straume (uk) Ltd v Bradlor Developments Ltd (1999)

The decision in A Straume (UK) Ltd v Bradlor Developments Ltd (1999) is of interest because it gives further guidance on the nature of adjudication proceedings, and particularly the Court’s view on when to deal with issues of set-off and counterclaim through adjudication.

In set-off the defendant raises as a defence the amount of damages caused by the Plaintiff’s breach of contract. The general principle of set-off is that unless the contract states otherwise, one party is entitled to set off only if the right said to be breached is so closely connected to the other party’s demand for payment that it would be manifestly unjust to enforce payment without taking into account the counterclaim Hanak -v- Green (1958). In addition where the claims on both sides are for payment of debts and where the sums are readily ascertained, then the counterclaim is a set-off. So, set-off is a particular type of counterclaim. A counterclaim generally may be much wider and it may be of an entirely different nature to the claim. Set-off is also to be distinguished from the defence of abatement of price which simply seeks to show how the breach of contract has reduced the value of the work applied for.

The distinction between a set-off and counterclaim arose in the above case. The contract was under JCT 80 with Amendment 18 incorporating adjudication provisions. An administrative order was made against Bradlor. The administrator of Bradlor commenced adjudication for payment of various interim certificates. Straume raised defences of set-off in the adjudication, but in addition applied to the Court for leave pursuant to s11(3) of the Insolvency act 1996 to commence adjudication proceedings in respect of its own claims.

It was held that leave was required since s11(3) prevented legal or quasi-legal processes such as arbitration being commenced during the period the Administration Order was in force, except by leave. Adjudication under HGCR Act 1996 was in effect a form of arbitration even though the arbitrator had discretion on the procedure to be used and even though the full rules of natural justice did not apply.

In deciding whether to give leave the Court examined the issue of set-off. It was held that if there was a valid set-off, then this could be determined in the adjudication commenced by the Administrator. It was unnecessary for two adjudications raising the same point.

If on the other hand there is no valid set-off, then this will be because the contract terms excluded a valid set-off. In that case there may be a counterclaim for liquidated damages, rectification work and damages for associated delays but these could not be defences to the claims for payment. It was held that the attempt to start the second adjudication was simply an attempt, by a side door, to get round the fact that there was a contractual bar to set-off.

It was therefore held that if there was a set-off then it could be dealt with in the first adjudication. If not, it was not right to permit separate proceedings in relation to an unliquidated claim which could at best be a counterclaim. Accordingly leave was refused.