Neutral Citation Number: [2009] EWHC 2223 (TCC)

Case No: HT-09-298

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

TECHNOLOGY AND CONSTRUCTION COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 03/09/2009

Before :

HIS HONOUR JUDGE TOULMIN CMG QC

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Between :

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Stuart Kennedy (instructed byMichelmores LLP) for the Claimant

Patrick Clarke (instructed by Ashfords LLP) for the Defendants

Hearing dates: 19 August 2009

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Judgment

HH JUDGE TOULMIN CMG, QC :

Judgment

1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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.

14. 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”

15. 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”

16. 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.

17. 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.

18. 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.”

19. 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.

20. 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”.

21. 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.

22. On 4 August 2009, even before 7 days had elapsed, the TCC Registry issued the Application dated 30 July 2009.

23. 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

24. 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.

25. The Claimant admits that he is liable to repay to the Defendants the specific sums awarded against him in the second adjudication.

26. 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.

27. 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)”

28. 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.

29. 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.

30. 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.

31. 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.

32. 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

33. 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.

34. 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).

35. 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.

36. 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.

37. 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”.

38. 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.”

39. 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.

40. 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.”

41. 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.

42. 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”.

43. 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?

44. 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.

45. 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.

46. 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.

47. 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.

48. 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.

49. 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.