Urang v Century Investments & Eclipse Hotels [2011] EWHC 1561 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-lawnow.com/adjudication

Judgment Date: 17.06.2011

SUMMARY

(1)  Where a contract provides for payment of  a sum certified as due by an independent third party that is a “sum due” under the contract. In the absence of a withholding notice (and provided the certificate is not invalid by reason of error or irregularity in relation to its issue), the sum certified must be paid by the date specified for payment. (2) The need to issue a withholding notice applies only to sums stated as due in interim certificates. There is no requirement to serve a withholding notice in relation to other claims made by a contractor, whether under a different provision in the contract or for damages. (3) However, an error in this respect made by the Adjudicator in this case was an error in law or fact and was no defence to an application for enforcement of the Adjudicator’s decision.

Technology and Construction Court, Edwards-Stuart J

BACKGROUND

Urang Commercial Limited (“Urang”) entered into separate building contracts with Century Investments Limited (“Century”) and Eclipse Hotels (Luton) Limited (“Eclipse”) for building works to hotels owned by each respectively. Both contracts were based upon the JCT 2005 form, which provided for adjudication pursuant to the Scheme.

Disputes arose under both contracts, which were the subject of separate adjudications, but which were referred to the same Adjudicator. Decisions were given in favour of Urang in both instances, which Urang sought to enforce by applying for summary judgement. As the issues were materially the same, the court dealt with both applications together.

The dispute with Century

On 19 January 2009, Century’s Quantity Surveyor issued Interim Valuation No 10, in the sum of £21,537. Under the terms of the contract, the final date for payment was 3 February 2009. No withholding notice was given. On 10 February, however, the Quantity Surveyor notified Urang that it would be paid only £10,062 against Interim Valuation No 10, although in the event Century paid £17,445.66, leaving £4,091.34 outstanding.

In June 2010 Urang commenced an adjudication, advancing claims for payment of the unpaid £4,091.34 along with claims for extensions of time, prolongation costs, payment of retention and interest. In response, Century claimed £19,890 for remedial works, loss of revenue and liquidated damages.

The Adjudicator awarded Urang the unpaid £4,091.34 under Interim Valuation No 10 along with £43,572.03 for its other claims. Century’s counterclaim was dismissed, the Adjudicator stating that “Such matters were presented as a counterclaim and are properly the subject of a Withholding Notice. Absent such a Notice I am unable to assess a value therefore in this adjudication.”

Century objected to the enforcement of the Adjudicator’s award on the basis that:

  1. The Adjudicator’s failure to consider the merits of Century’s counterclaim was contrary to the principles of natural justice (he had failed to address important issues referred to him);
  2. Urang had failed to show that any sums were due under the contract and, by reason of the Adjudicator’s failure to comply with the principles of natural justice, Urang therefore could not recover anything (not even the £4,091.34 under Interim Valuation No 10).

The dispute with Eclipse

The background facts in the dispute between Urang and Eclipse were materially the same. On 3 March 2009 Eclipse’s Quantity Surveyor issued a Valuation/Payment Certificate in the sum of £15,971. No withholding notice was issued but Eclipse refused to pay Urang’s invoice for that amount. In June 2010, Urang commenced an adjudication, advancing claims for payment of that sum and in respect of additional preliminaries, payment of retention and interest. In its Response, Eclipse advanced a counterclaim in the sum of £72,650, including claims for defects, remedial works, loss of revenue and liquidated damages. The Adjudicator awarded Urang the full £15,971 along with £6,929.35 for its other claims. As with the Century counterclaim, the Adjudicator dismissed this for lack of a withholding notice.

ISSUES

The Court was asked to address the following issues:

  • Was the sum specified in Interim Valuation No 10 a ‘sum due’ under the Century Contract?
  • Were the Adjudicators’ decisions in respect of each counterclaim in breach of the principles of natural justice, rendering the awards unenforceable?

DECISION

The Court held that:

  • The effect of the payment provisions of the contract was that the amount stated as due in an interim certificatewas a “sum due” under the contract. In the absence of a withholding notice (and provided the certificate is not invalid by reason of error or irregularity in relation to its issue), the sum certified must be paid by the date specified for payment.
  • Withholding notices were confined to the procedure of interim payment certificatesas required by sections 110 and 111 of the HGCRA. Accordingly, the Adjudicator was wrong to decide that Century and Eclipse could not deploy their counterclaims as a defence to Urang’s claims in the adjudications (apart from the claims under the certificates) in the absence of withholding notices.
  • However, this did not change the fact that the Adjudicator had considered the question of whether the counterclaims could be deployed as defences to Urang’s claims. By concluding that they could not by reason of the absence of withholding notices, the Adjudicator had answered that question, albeit incorrectly. An adjudicator’s error of fact or law is not a defence to an application to enforce an award.
  • The Adjudicator’s decisions should be enforced.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-lawnow.com/adjudication

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