In Northern Developments (Cumbria) Ltd v J & J Nichol (24 Jan 2000) TCC the issue was whether the adjudicator had jurisdiction to deal with a claim of set-off for damages for alleged repudiation. The decision clearly establishes which matters can be considered by an adjudicator when deciding how much is due for payment on an application for payment.

NDL was the main contractor for the construction of an outlet for M Sport Ltd at Dovenby Hall in Cumbria. J&JN were subcontractors for the steel frame roof cladding.

On 13^th July 1999 J&JN made an application for payment. On 29^th July 1999 NDL wrote a letter purporting to be a Notice of Intention to Withhold Payment under Section 111 of the Act. The Notice complained of defective work and set a value on the defective works. The Notice also complained of delays but did not set a value on the delays. NDL refused payment claiming that the set-off for defective work overtopped the sum claimed. On 6^th August 1999 J&JN withdrew from the site. NDL treated this as a repudiatory breach of contract and appointed another subcontractor to complete the works.

J&JN commenced adjudication claiming payment for work carried out up to 6^th August 1999, the date when it withdrew from site. NDL contended that the claim could be reduced by set-off to take into account defective work, delays and damages for repudiatory breach.

The adjudicator decided first that the Notice of Intention to Withhold was invalid. Since he had not given reasons for this part of his decision, it was held that this decision could not be impeached. The decision in VHE Construction plc v RBSTB Trust Co Ltd was referred to in which it was held that the court had no appellate jurisdiction over Adjudicators

Despite the invalidity of the Notice, the adjudicator still dealt with the issue of defects. He considered that the absence of a Section 110 notice meant that he had to decide the value of the work properly carried out in accordance with the subcontract terms. Alternatively he considered that the defects could be dealt with because they were necessarily connected with the dispute and paragraph 20 of the Scheme gave him power to decide the issue. He also considered that both the delays and the repudiation were also caught by paragraph 20. He decided however that he could not decide the issue of repudiation because it was not a "dispute under the contract".

On this last point it was held that the adjudicator had made the right decision but based on a reason which was wrong in law.

The decision in Heyman v Darwins (1942) established that acceptance of repudiation brings performance of the contract to an end, but the contract still exists and any rights arising under it remain to be enforced under the contract. The repudiation issues were matters "arising under the contract", and, if they had been mentioned in the notice of intention to withhold payment , the Adjudicator would have had a discretion under paragraph 20 of the Scheme to take them into account if he considered them to be necessarily connected with the dispute. It would be a wrongful exercise of his discretion to refuse to exercise the discretion. If he did exercise his discretion, it would be almost certainly impossible to challenge the exercise of that discretion whichever way he decided the discretion, in favour or against considering the other matters.

In this case however the Adjudicator did not have a discretion, because the repudiation was not mentioned in notice of intention to withhold payment. Indeed the adjudicator had no jurisdiction to consider the issue of repudiation in a dispute about the amount of payment in an application. It was held that the intention of statute was clear, that if there was to be a dispute about the amount of payment required by Section 111, that dispute is to be mentioned in a notice of intention to withhold payment.

This did not mean that the matter of repudiation could not be raised as a separate dispute. The temporary striking of balances of an adjudicator’s decision is a temporary arrangement which does not prevent the presentation of other set-offs, abatements, or indeed counterclaims at a later date by litigation, arbitration, or adjudication. The repudiation issue might have been raised in a later adjudication either by the same or a different Adjudicator. Depending on the timing of the decisions of those adjudications, enforcement might involve the set-off of decisions as occurred in VHE Construction plc v RBSTB Trust Co Ltd. It was held that although it might be appropriate to set off one adjudication decision against a conflicting decision in enforcement proceedings, this was not authority for making a set-off within adjudication proceedings of matters sought to be introduced in breach of the statutory provisions.