The parties are obliged to ensure that the
Adjudicator's award is given effect. Withholding notices need
to be served prior to adjudication and to be considered and dealt
with as part of the adjudication. It would defeat the purpose
of adjudication if an adjudicator's decision could be defeated by a
withholding notice in respect of events which occurred subsequent
to the commencement of the adjudication.
HHJ Gilliland QC, QBD (TCC) Salford District
Registry
19 March 2004
DGH engaged MJG to do work under a JCT 1998 With
Contractor's Design standard form (with amendments). A
dispute arose as to MJG's entitlement to payment pursuant to
interim application number 31 and was referred to
adjudication. The payment mechanism is set out in clause
30.3. The Adjudicator decided that, following receipt of
application 31, DGH had not given any written notice, either of the
amount to be paid or any sums to be withheld, in response, so MJG
was entitled to payment of the full sum set out in application
31. DGH failed to pay, and MJG applied to the Court for
summary judgment.
DGH resisted enforcement of the Adjudicator's award
on two grounds.
The first ground was that before
the Adjudicator had issued his award, MJG made an application for
further payment under application number 33. DGH responded by
issuing a valuation certificate for significantly less than the
amount MJG had applied for in application 31. DGH claimed
that this was an effective notice under cl30.3.3 and was a correct
valuation, whereas the Adjudicator's decision was a valuation of
the works in respect of application 31. DGH argued that its
valuation certificate had pre-dated the Adjudicator's decision and
so it had the right to the return of sums not yet awarded by the
Adjudicator regarding application 33.
The Court held that giving notice under cl30.3.3 on
a subsequent valuation cannot affect what amount was payable under
an earlier application. Cl39A.7.2 obliges the parties to
ensure that the Adjudicator's award is given effect, and under
cl39A.7.1, his decision is binding until final determination of the
dispute by arbitration, litigation or agreement. The
subsequent application and valuation of it could not be any such
final determination.
DGH also relied on Rupert Morgan Building
Services v David and Harriet Jervis to argue that, under
cl30.3, an overpayment could be recouped on a subsequent
application on the basis that that case noted that errors in
previous certificates could be corrected in later ones.
However, the Judge held that whilst through the processes of clause
30 the employer could determine that no further sums were payable
to the contractor there was nothing in the contract which obliged
the contractor to repay any amounts he had already received (or
which had been determined he should receive) in respect of previous
applications.
DGH's second ground for resisting
enforcement was that, two days after the Adjudicator issued his
decision, DGH gave notice to MJG of withholding LADs against the
Adjudicator's award. Because the LADs plus the alleged
excessive valuation set out in the valuation certificate in respect
of application 33 amounted to more than the Adjudicator's award,
DGH claimed there was good reason for not enforcing the award or
for granting a stay of enforcement of it until the decision on a
separate dispute concerning application 33 had been issued.
Further, DGH submitted that it would be inappropriate to enforce
MJG's right to payment when DGH could itself commence proceedings
to recover LADs.
The Court held that, when the dispute was referred
to adjudication, no notice of non-completion had been served
pursuant to cl24.1. This was despite the delay for which DGH
was now claiming LADs having occurred nearly a year before.
The question of LADs was also not raised in the adjudication and
the Adjudicator had reached his decision without regard to that
possible issue, so DGH could not now rely on LADs as a defence to
the enforcement proceedings, particularly as the matter of LADs
could have been pursued long before the adjudication started.
The language of cl39 was inconsistent with allowing rights of
set-off against an adjudicator's decision. The withholding
notice served in relation to LADs was not valid as it had not been
served within 35 days from the receipt of application 31 by DGH as
required by cl30.3.6. Cl39A.7 makes clear that the
Adjudicator's award is to be enforced as it stands and is not to be
subject to deductions. The Court considered The
Construction Centre Group v The Highland Council along with
VHE Construction v RBSTB Trust Company and considered they
provided confirmation that no withholding notice could be served in
relation to an adjudicator's decision. A withholding notice
needs to be served prior to adjudication and to be considered and
dealt with as part of the adjudication. The Court said that
it would defeat the purpose of adjudication as being to provide a
quick and effective remedy on an interim basis if an adjudicator's
decision could be defeated by a withholding notice in respect of
events which occurred subsequent to the commencement of the
adjudication. The judge did not conclude that the
adjudicator's decision gave a fresh right to payment with new
rights of notification and withholding – rather it confirmed
the obligation to pay the final application.
With regard to DGH's submission that there should
be a stay of enforcement pending a decision by the Adjdicator in
the subsequent adjudication concerning application 33, the Court
decided this would be inappropriate. That decision in a
subsequent adjudication could not affect MJG's entitlement to
summary judgment regarding the decision of the Adjudicator on the
earlier application 31. No suggestion had been made that the
claimant would not be able to repay any monies if at the end of the
day it was found to have been overpaid. The matter was one of
cashflow; the contractual provisions were clear and there was no
reason to keep the claimant out of its money.
The Court therefore gave judgment for MJG and
refused a stay of enforcement.