HH JUDGE TOULMIN
CMG,
QC :
Judgment
- There are before me two applications
dated/sealed
17 July 2009 and 4 August 2009 to enforce
decisions
by Mr
David
Simper (the adjudicator) made on 17 June 2009 and 22 July 2009. Each arises in respect of a
contract
between the
Claimant,
Mr S.G. Hart trading as
D.W.
Hart and Son (the
contractor),
and the
Defendants,
Mr and Mrs Smith (the employer), in respect of a
contract
to
convert
three agricultural barns at
Chelston
Manor,
Chelston,
Wellington
TA21 9HP into
four
dwelling
houses.
- The
contract
for
the
work
was
dated
27 March 2006. The
contract
price
was
£568,000. The
contract
was
on the JCT Standard Building
Contract
with
Quantities 2005 Edition and
was
therefore an agreement
within
sections 107(2) and (4) of the Housing Grants
Construction
and Regeneration Act 1996 (the Act)
which
under section 108 gives the parties a right to refer any such
dispute
to adjudication.
- The initial
dispute,
which
was
the subject of the
first
adjudication, relates to Interim
Certificates
21 and 24. Interim
Certificate
21
was
due
for
payment not later than 24 November 2008. The particulars of
claim
allege that there
was
no valid notice of
withholding
in accordance
with
Clause
4.13.4 of the
contract.
Such a notice
would
need to have been issued by no later than 19 November 2008 to
comply
with
the time limit
for
the giving of such a notice under the
contract.
Under
cover
of a letter
dated
16
December
2008 the
Defendants
made a payment of £20,190.28 leaving a balance of £9,514.04.
- The
Claimant
issued Interim
Certificate
24 on 24 March 2009 in the sum of £70,386.38
with
a
final
date
for
payment of 7 April 2009. Under the terms of
Clause
4.13.4 of the
contract,
the notice of
withholding,
to be effective,
would
need to have been issued no later than 2 April 2009.
- By a letter
dated
25 April 2009, the
Defendants
issued a notice of
withholding.
The
Claimant
contended
in the adjudication that this
did
not relate specifically to either Interim
Certificate
and
was
in any event issued too late.
- By a letter
dated
20 May 2009 the
Claimant
gave notice of a referral to adjudication. Mr Simper
was
appointed and after submissions gave his
decision
on 17 June 2009 that the
Defendants
should pay the
Claimant
the sum of £79,900.43 being the sum of £9,514.04 in respect of Interim
Certificate
21 and £70,386.38 in respect of Interim
Certificate
24.
- By a Notice
dated
16 June 2009 the
Defendants'
solicitors gave notice on behalf of the
Defendants
to refer a
further
dispute
under the
contract
to adjudication. This referred to the Notice of Intent to Refer
dated
10 June 2009.
- The brief
details
of this
dispute
allege that the
Claimant
failed
to
complete
the
works
on the three barns by the
due
dates
(Barns B and
C
by 16 November 2006 and Barn A by 5 August 2007), and
claimed
that the
Defendants
were
entitled to a
certificate
for
non-
completion
in respect of each of the 3 barns and to
deduct/or
be paid LAD's (liquidated and ascertain
damages)
at the rate stated in the
contract.
- On 26 May 2009 the
contract
administrator issued Interim
Certificate
25
certifying
a balance of £7,381.20
due
to be repaid to Mr and Mrs Smith. The
final
date
for
payment
was
to be 9 June 2009.
- On 29 May 2009 Mr and Mrs Smith purported to serve a Notice of
Withholding
of £138,185.79. This sum
was
added to the
claim
of the
certified
sum of £7,381
which
was
referred to the adjudicator. Mr and Mrs Smith stipulated that this sum
was
to be paid by 9 June 2009.
- In his
decision
dated
22 July 2009 Mr Simper set out the relief sought by each of the parties. Mr and Mrs Smith sought the
following
relief:
1) Payment by Hart of the sum of £7,381.20 under Interim
Certificate
25.
2) Payment by Hart in the sum of £138,185.79 under the Notice of
Withholding.
3) Payment of interest on (1) and (2).
4) A
declaration
that Mr and Mrs Smith
were
entitled to a
Certificate
of Non-
Completion
in respect of each section of the
work
on the barns.
5) Payment of the adjudicator's
fees.
6) Payment of Mr and Mrs Smith's legal
costs.
- In response Hart
contended
that:
1) There
was
no sum
due
in respect of Interim
Certificate
25.
2) There
was
no sum
due
under the
Withholding
Notice.
3) No interest
was
due.
4)
While
an entitlement to sectional
certificates
of non-
completion
may exist, the adjudicator
could
only reasonably give a one
word
positive or negative answer to the question posed. The adjudicator had not been asked in the referral to
determine
the extent of any
delay
to the
works
nor
was
he in a position to
do
so.
5) Mr and Mrs Smith should pay the adjudicator's
fees.
6) Mr and Mrs Smith
were
not entitled to recover the
costs
of the referral.
- In relation to the
first
three issues the adjudicator
found
as
follows:
Issues 1 and 3: Mr and Mrs Smith are entitled to be repaid the sum of £7,381.20 by Hart together
with
interest at the
contract
rate.
Issues 2 and 3: Mr and Mrs Smith are entitled to be paid the sum of £4,112.04 under the Notice of
Withholding
together
with
interest at the
contract
rate.
It is
clear
that this sum related to the
claim
in respect of the
collapsed
wall.
- In relation to other issues Mr Simper explained at Paragraph 36 of his
decision:
"In response Hart
does
not
consider
that the Smiths are entitled to any of the monies set out in the
Withholding
Notice. I agree
with
Hart that monies are not
due
for
LD's, refinancing and legal
costs
and I set out below my reasons"
- In relation to liquidated
damages
the adjudicator gave his
decision
at Paragraph 37 as
follows:
"37. I have
found
under Issue 4 that the Smiths are entitled to
Certificates
of Non-
Completion.
Clause
2.32 makes it
clear
that until the
certificates
are issued the Smiths
cannot
require Hart to pay the LD's"
- Paragraph 38 of the
decision
deals
with
the
claim
for
additional re-
financing
charges.
The adjudicator's
decision
does
not read entirely
clearly
but he appears to be making the point that until the
contract
administrator has
dealt
with
delays
to the project and either issued an extension of time or refused to
do
so, it
was
not possible to assess liquidated
damages.
- In relation to Issue 4 in his list of issues the adjudicator
found
that Mr and Mrs Smith
were
entitled to a
Certificate
of Non-
Completion
in respect of each of Barns A, B and
C.
- Mr Simper gave his reasons as
follows:
"49.
Clause
2.31 of the
contract
is quite specific 'if the
contractor
fails
to
complete
the
works
or a section by the relevant
completion
date,
the architect/
contract
administrator shall issue a
certificate
to that effect' I have underlined the
word
'shall' as that is the important
word
which
makes the requirement mandatory. Hart
did
not
complete
any of the Sections by the
contractual
dates
and no extensions of time have been granted. Therefore as soon as the
completion
dates
in the
contract
were
passed
without
the
work
being
completed,
a
certificate
of
delay
should have been issued."
- The adjudicator
went
on to say that he
was
unable himself to issue the
Certificates
of Non-
Completion
but he
was
able to make a
Declaration
of Entitlement. The
Claimant
set out in the adjudication his applications
for
extensions of time under the
contract,
but in view of the adjudicators
findings,
it
was
unnecessary
for
the adjudicator to
deal
with
this issue.
- On 23 July 2009 the
Contract
Administrator issued the
certificates
"under the terms of the
contract
dated
27 March 2006 and as
directed
by the adjudicator his
decision
dated
22 July 2009. Each
certificate
notes that "(1)
Deduction
of any
damages
is at the
discretion
of the Employer".
- On 27 July 2009 Mr and Mrs Smith
wrote
to Hart
claiming
liquidated
damages
for
non-
completion
of the
work
on Barns A, B and
C.
The total sum
claimed
is £71,314.29. The sum of £40,371.43 is
claimed
for
Barns B and
C
and £30,942.86 in respect of Barn A. Significantly the letter ends as
follows:
"
We
look
forward
to receiving payment of the above sum by return.
We
also look
forward
to payment of the sums awarded by the adjudicator in the recent adjudication". This letter seems to indicate that the
claim
for
£71,314.29 is a new
claim
and separate
from
payment of the sums awarded by the adjudicator in the recent adjudication.
- On 4 August 2009, even before 7
days
had elapsed, the TCC Registry issued the Application
dated
30 July 2009.
- On 22 July 2009 the
Claimant
offered to set off the monetary sums awarded in the second adjudication amounting to £11,835.31.
The
Contentions
of the Parties
- The
Defendants
admit that, subject to the right of set off, they are liable to pay the sums awarded against them in the
first
adjudication.
- The
Claimant
admits that he is liable to repay to the
Defendants
the specific sums awarded against him in the second adjudication.
- The
dispute
which
I have to
decide
relates to the
claim
by the
Defendants
that the
Claimant
is liable to pay liquidated
damages
in the sum of £71,314.29 in relation to the
declaration
by the adjudicator that the
defendants
were
entitled to
Certificates
of Non-
Completion
and the subsequent issue of
Certificates
of Non-
Completion
by the
Contract
Administrator, and to set off that sum against the sum of £79,900.43 awarded to Hart in the
first
adjudication.
- The
Defendants
contend
that the
debt
in the sum of £71,314.29 is a natural
consequence
of a) the
declaration
made by the adjudicator and b) the issuance of
certificates
by Mr Hanna, the
Contract
Administrator, and
c)
the issuance of the notice of the
Defendants'
claim
for
liquidated
damages
to the
Claimant
by the letter
dated
27 July 2009. As Mr Patrick
Clarke,
the
Defendants'
counsel
put it at Paragraph 6 of his skeleton argument:
"The
Defendant's
position is that the
falling
due
of liquidated
damages
for
delay
is a natural
consequence
of that
declaration
(subject to the actual issue of the appropriate notices)"
- The
claim
that it is a natural
consequence
is, so the
Defendants
say, a natural
consequence
of the interpretation of
Clauses
2.31, 2.32.1 and 2.32 of the
contract.
The argument runs as
follows.
Under
Clause
2.31 the
contract
administrator is required to issue a
certificate
of non-
completion
if a
contractor
fails
to
complete
the
contract
works
by the relevant
completion
date.
The relevant
completion
date
is the actual
completion
date
arrived at by taking account of any additional time allowed as a result of an application by the
contractor
for
an extension of time under
Clauses
2.27 and 2.28 of the
contract.
The
failure
to apply
for
an extension of time by the
date
of a
certificate
of non-
completion
does
not preclude a successful subsequent application
for
an extension of time in
which
case
the earlier
certificate
of non-
completion
is
cancelled.
- The argument
continues
that under
Clause
2.32 of the
contract,
if a non-
completion
certificate
has been issued and the Employer has informed the
contractor
that he requires payment of liquidated
damages
before the
date
of the
Final
Certificate
he may recover those liquidated
damages
as a
debt.
- The
final
step in the argument is that under
Clause
2.32.3 of the
contract,
if the
contract
administrator subsequently
fixes
a later
completion
date
for
the
works,
the employer shall pay or repay the
contractor
any liquidated
damages
paid or
deducted
for
the period up to that
completion
date.
- In support of its
contention,
the
Defendants
rely in particular, on the principles set out in the judgment of Jackson J in Balfour Beatty
Construction
v Serco Ltd [2004] EWHC 3336 to
which
I shall refer later.
- The
Claimant
denies
that the
Defendants
are entitled to set off the sum of £71,314.29 or any sum as a result of the adjudicator's
declaration
of entitlement. He
contends
that in relation to this sum the adjudicator has not made any award or order
for
payment and his
decision
is merely
declaratory.
The
Defendants
are not entitled, therefore, to set off any such sum in relation to the
first
adjudication or to an award in that sum in relation to the second adjudication. The
Claimant
makes no attempt to
deal
with
the
Defendants'
arguments on the merits. He says simply that the sum of £71,314.29
does
not
follow
from
the adjudicator's award.
Decision
- I start
with
well
established principles of law
which
must
frame
any
consideration
of this
case.
The starting point of any
consideration
of the law of adjudication is the 1996 Act. It has been
well
established
for
many years that the purpose of the Act
was
to introduce a mechanism
for
the prompt settlement of
disputes
in
Construction
Contracts
on a provisional basis. This requires
decisions
of adjudicators to be enforced promptly pending the
final
determination
of such
disputes
by litigation, arbitration and agreement – see
Dyson
J in Macob
Civil
Engineering Ltd v Morrison
Construction
Ltd [1999] BLR 92 at 97 and section 108(3) of the Act.
- It
follows
that the intention of Parliament is that the
decision
of the adjudicator should be given effect in a
way
which
is
consistent
with
providing a quick and effective remedy on an interim basis and
without
consideration
of arguments relating to other provisions in the
contract
– see
Ferson
Contractors
v Levolux AT Limited [2003] BLR 118 (
Court
of Appeal) and HH Judge Gilliland QC in MJ Gleeson Group Plc v
Devonshire
Green Holdings (Salford
District
Registry 19 March 2004) approved by Ramsey J in
William
Verry Ltd v
Camden
London Borough
Council
[2006] EWHC 761 (TCC).
- It is
clear
from
the jurisprudence, largely
developed
by this
court
and
confirmed
by the
Court
of Appeal, that there are only very limited grounds
for
refusing to enforce immediately an adjudicator's award setting out sums
which
have been
found
by the adjudicator to be
due
to a party in an adjudication – see Bouyges (UK) Ltd v
Dahl-Jensen
(UK) Ltd [2000] 13
CLR
135 and succeeding
cases.
- Equally, if a
dispute
has not been referred to an adjudicator or has not been the subject of an adjudicator's
decision,
the 1996 Act
does
not apply and there is no
decision
to enforce. In a such a
case,
of
course,
the right of set off
does
not arise.
- Section 111 of the Act provides a
comprehensive
code
governing the right to set off against payments
contractually
due
see HH Judge Hicks QC in VHE
Construction
Plc v RBSTB Trust
Co
Ltd [2000] BLR 187 and
William
Verry Ltd v
Camden
London Borough
Council
[2006] EWHC 761 (TCC)
where
Ramsey J said "The effect of the statutory provisions is generally to exclude a right of set off
from
an adjudicator's
decision".
- In Interserve Industrial Services Ltd v
Cleveland
Bridge (UK) Ltd [2006] EWHC (TCC) 741 ('Interserve'), at Paragraph 43 of his judgment, Jackson J set out the
following
principles relating to set off in multiple adjudications
with
which
I respectfully agree.
"
Where
the parties to a
construction
contract
engage in successive adjudications, each
focussed
upon the party's
current
rights and remedies, in my view the
correct
approach is as
follows:
at the end of each adjudication, absence special
circumstances,
the losing party must
comply
with
the adjudicator's
decision.
He
cannot
withhold
payment on the grounds of his anticipated recovery in a
future
adjudication based on
different
issues. I reach this
conclusion
both on the express terms of the Act and also
from
the line of authority referred to in this judgment."
- In his recent judgment in H S
Works
v Enterprise Managed Services [2009] EWCH 729 (TCC) [2009] 124
CLR
69, Akenhead J set out in paragraph 40 the questions to be asked and answered:
1) Are both
decisions
valid?
2) If yes, are both
decisions
enforceable?
3) If yes, the
court
should give effect to both
decisions
but in a
way
which
does
not
favour
one party or the other.
4) How each
decision
is to be enforced is a matter
for
the
Court
exercising its
duty
to act
fairly.
- In Balfour Beatty
Construction
v Serco Ltd [2004] EWHC 3336 Jackson J set out guiding principles. They are as
follows:
"53a)
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 (in so
far
as is required)
b)
Where
the entitlement to the liquidated and ascertained
damages
has not been
determined
expressly or implied by the adjudicator's
decision
then the question of
whether
the employer is entitled to set off liquidated and ascertained
damages
will
depend
on the
contract
and the
circumstances
of the
case."
- The parties
do
not rely on the second of these two propositions but only on the
first.
In my view the principle set out in the
first
proposition is subject to the
considerations
which
I have already set out including those set out by Jackson J himself in Interserve and Akenhead J in H S
Works.
- It is
clear
from
Jackson J's judgment in Balfour Beatty that the propositions set out in paragraph 53 of his judgment must be
construed
in
context.
In that
case
he held that the adjudicator "had not reached any
definitive
conclusion"
on the total extension of time
due
to Balfour Beatty. Therefore he
found
that "no specific entitlement to liquidated and ascertained
damages
followed
logically
from
the adjudicator's
decision".
- There are therefore two questions a)
does
the specific sum of £71,314.29
follow
logically
from
the adjudicator's
decision
in the second adjudication? and b)
can
the sum be set off against the adjudicator's award in the
first
adjudication?
- In relation to the
first
of these questions it is instructive to note the experienced adjudicator's own approach. Under Issue Two he
was
asked to
consider
ordering the payment to Mr and Mrs Smith of the sum of £138,785.79
due
under a Notice of
Withholding
issued on 29 May 2009. Those sums
comprised
alleged liquidated and ascertained
damages
for
Barns B and
C
of £40,471.43; Barn A £28,500 giving a total of £68,971.43 (not £71,314.29 now being
claimed);
rear
wall
£4,112.04 (in respect of
which
an award
was
made); refinancing
charges
of £58,827.57 and legal
costs
of £6,974.75. In his
decision
(Paragraph 37) the adjudicator made it
clear
that until the
certificates
were
issued Mr and Mrs Smith
could
not request Hart to pay liquidated
damages
and said that he
was
unable to give a
decision
on this issue. He
does
not, himself, give any
clear
indication of the
financial
consequences
of the issue of the
Certificates
of Non-
Completion.
- I note also that there is a
discrepancy
between the sums
claimed
in relation to Barns A, B and
C
in the adjudication proceedings and the sum
claimed
in these proceedings.
- In any event I have
come
to the
clear
conclusion
that the
Defendants
cannot
enforce their
claim
to recover £71.314.29
from
the
Claimant.
Section 108(3) of the Act gives the
Court
jurisdiction to enforce the
decision
of the adjudicator.
What
follows
logically
from
the adjudicator's
decision
is a
declaration
that the
Contract
Administrator ought to issue the
Certificates
of Non-
Completion
and nothing more. It
cannot
be
derived
from
the adjudicator's
decision
that the adjudicator
decided
as part of that
decision
that the
Claimant
was
to repay the sum of £71,314.29 or any sum. Indeed he specifically
decided
that he
could
make no such
decision
in that adjudication.
- There is a significant
difference
between this
claim
and the
circumstances
where
it is possible to
calculate
the sums
which
are a
direct
consequence
of the adjudicator's award e.g.
where
the adjudicator
decided
that a party is entitled to recover a sum of money
which
in
fact
can
be
calculated
by reference to
figures
accepted by the adjudicator in the
course
of the adjudication. In this
case
it
would
be necessary to
consider
the effect of
contractual
provisions on
which
the adjudicator made no affirmative
finding
in order to reach a
conclusion
that Mr and Mrs Smith
were
entitled to liquidated and ascertained
damages.
This might be a matter
for
a separate application
for
summary judgment or a
further
adjudication but it is not
within
the
Court's
jurisdiction
for
enforcement of the
current
adjudicator's award.
- If I had
found
in
favour
of the
Defendants
on the primary issue, I should not have set off the sum
claimed
at this hearing against the sum awarded in the
first
adjudication
without
hearing
further
argument. It seems to me to be
fundamental
to the process of adjudication,
for
the reasons given by Jackson J in Interserve and Akenhead J in H S
Works,
that in multiple adjudications each
decision
should be
capable
of enforcement separately.
- The
Claimant
is prepared to set off against the sum of £79,386.38 together
with
interest a the
contractual
rate, the sums of £7,381.20 (
due
to be repaid) and £4,112.04 together
with
the interest
which
the adjudicator
found
to be
due
to Mr and Mrs Smith in the second adjudication. The Parties are agreed that this
calculation
results in Judgment
for
the
Claimant
in the sum of £70,895.86.
- I should add that I have now had two adjudication enforcement hearings
within
a
week
where
there
was
a risk that arguments relating to the enforcement of an adjudicator's award
would
be
confused
with
arguments appropriate to an application
for
summary judgment on the merits before this
court
or a
further
adjudication. In my view adjudication enforcement hearings are, rightly,
confined
to the narrow issue of
whether
or not the adjudicator's
decision
should be enforced by the
court.