IN THE EPSOM COUNTY COURT Claim No: KT203081

BEFORE HIS HONOUR JUDGE HULL QC

BETWEEN

DUMARC BUILDING SERVICES LIMITED

Claimant/Applicant

-and-

MR SALVADOR-RICO

Defendant/Respondent

CASE SUMMARY

BUILDING AND CONSTRUCTION – ADJUDICATION – SUMMARY JUDGMENT – SET OFF

This case is one of the first to show the impact of the Court of Appeal’s decision in Levolux AT Ltd v Ferson Contractors Ltd (CA) [2003] EWCA Civ 11, [2003] All ER (D) 172 (Jan) which was decided just 9 days before the hearing.

Background

The case concerned enforcement proceedings by way of summary judgment in relation to an adjudication arising out of a building contract.

The works were carried upon a residential home. The contract was therefore not a ‘construction contract’ under the Housing Grants Construction and Regeneration Act 1996. Accordingly, statutory scheme for adjudication under Part II of that Act did not apply.

The contract from used by the parties was the JCT Minor Works form, 1998 edition. This included amendment MW11, which was enacted so that the contract complied with the HGCRA 1996. Therefore the amendment provided for disputes to be resolved by adjudication binding on the parties until the dispute was finally resolved by litigation or arbitration, in accordance with s108 of the HGCRA 1996.

On 10 September 1999 the Architect produced an interim certificate, certifying that the sum of £13,558 was due to the Contractor. On 14 September 1999 the Employer served a withholding notice under clause 4.2.2, seeking to withhold sums for defective works, non-performance and liquidated damages.

On 22 March 2002 the Contractor referred the dispute to adjudication. In his award dated 16 April 2002 the Adjudicator found that there was an area of over-certification and reduced the sum due to the Contractor, the Employer to pay the costs of the Adjudication within 28 days.

No payment was forthcoming. In subsequent correspondence, the Employer maintained that it was entitled to withhold sums due by way of liquidated damages. The contractor brought proceedings to enforce the award, which was met by a counterclaim for liquidated damages. The contractor applied for summary judgment.

Issued before the Court on 31. 1. 03

There was a dispute between the parties over the issues determined by the adjudication. This was resolved in the Employer’s favour; the Judge decided that the Adjudicator had not determined whether or not the Employer was entitled to deduct liquidated damages from the certified sum.

The Court went on to consider whether the Employer was correct in his contention that he was entitled to set off liquidated damages allegedly owed from the sums awarded by the Adjudicator. The Employer sought to show that clause 2.3 of the contract (as amended) gave an Employer the right to set of liquidated damages from ‘any monies’ due under the contract. This it was said included sums due under an adjudication award, which was purely contractual in nature. Counsel for the Employer relied upon the third principle in Bovis Lend Lease Limited v Triangle Development Limited (2.11.02 TCC) PER HHJ Thornton.

The Contractor argued that clause 2.3 should not be interpreted to provide a right of set off against adjudication awards, both on its plain reading and following Levolux AT Ltd v Ferson Contractors Ltd (CA) [2003] EWCA Civ 11, [2003] All ER (D) 172 (Jan). Counsel for the Contractor contended that the express purpose of Amendment MW11 was to bring the contract into compliance with the HGCRA. Therefore, the contract should be interpreted to give effect to the adjudication provisions so that it provided an effective means of dispute resolution. Accordingly, the contract should be construed against allowing sums to be set off against an adjudicator’s award or, if this was not possible, the offending clause should be struck down, following Lord Justice Mantell’s judgment at paragraph 30 of Levolux.

Clause 2.3 as amended also provided that an Employer who sought to set off liquidated damages against sums certified in interim or final certificates should provide a withholding notice at least 5 days before the last day on which payment was due. Therefore, the Contractor argued the clause 2.3 was only intended to refer to sums certified and not to sums awarded under an adjudication. Alternatively, it was argued that a fresh withholding notice should be been sent following the adjudication.

The Decision

HHJ Hull QC held that clause 2.3 did not provide a party with a right to set off a claim for liquidated damages against an adjudication decision. To hold otherwise would drive a coach and horses through the HGCRA and through the detailed provisions the parties had agreed upon to resolve disputes by way of adjudication.

The Judge held that the effect of the Employer’s submissions would be to read into clause 2.3 the word ‘including sums owed under an adjudication’. The court declined to do this.

Further and in any event, the Judge held that the Employer was not assisted by HHJ Thornton’s decision in Bovis that an express term of the contract could provide a right to set off claims against an adjudication. In the Judge’s opinion, this decision has now been disapproved in that respect by the Court of Appeal in Levolux and so would not be followed.

Levolux had brought about a welcome simplifications of the law. The purpose behind it was readily understandable. Having regard to the purposes for which Part II of the HGCRA was enacted, if the Court allowed parties to set off sums against an adjudicator’s decision, this would in the Judge’s view prevent adjudication from being an effective remedy.

The Defence and Counterclaim would therefore be struck out and judgment entered fort he Applicant Contractor with costs.

Brent McDonald, 2 Temple Gardens

Counsel for Dumarc Building Services