R and C Electrical Engineers Limited v Shaylor Construction Limited [2012] EWHC 1254 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

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

Judgment Date: 15.05.2012


SUMMARY

(1)  A sub-contractor had failed to show that the certification procedure under the main contract had broken down and could not be revived.  Accordingly he was not entitled to immediate payment of the final payment under his sub-contract awarded to him by an adjudicator, where the adjudicator had also held that the amount was only payable following the issue of the Final Certificate under the main contract.  (2) The main contractor was not prevented from setting off against the amount awarded any sum that it would have been entitled to set off against the final payment under the final payment clause in the sub-contract.

Technology and Construction Court, Edwards-Stuart J

BACKGROUND

Ashley House PLC (Ashley) entered into a main contract with Shaylor Construction Limited (Shaylor) for work at Goscote Hospital, Walsall.  Shaylor entered into a sub-contract with R and C Electrical Engineers (R&C) to carry out the mechanical and electrical works.

The main and sub-contract works were completed in March 2011.  By November 2011 a dispute had arisen between R&C and Shaylor about R&C’s financial and other entitlements under the sub-contract. R&C referred the dispute to adjudication.  R&C claimed that time was at large and sought damages for delay together with the determination of the amount of its final account.  Shaylor cross-claimed for delay, asserting that R&C had failed to complete by the date for completion.

The Adjudicator issued his decision in January 2012.  He held that:

(1) Under the sub-contract time was at large and so R&C was entitled to a reasonable time within which to complete the sub-contract works.

(2) However, the 39 weeks that it took R&C to complete the works was not a reasonable time as R&C was responsible for at least 4 weeks of the delay.

(3) R&C had failed to demonstrate any entitlement to damages arising out of the delay.

(4) Since Shaylor’s cross claim for delay was based on the provisions in the contract relating to the time of completion (rather than as if time was at large), Shaylor had failed to demonstrate any identifiable loss attributable to the 4 week delay for which R&C was responsible.

(5) R&C was entitled to a final payment of £196,963. 

(6) However, since clause 21.8(b) of the sub-contract provided that the final payment did not become due until 30 days after the date of issue of the Final Certificate under the main contract, and since that Final Certificate had not yet been issued, the Adjudicator directed that “any sum to which R&C are entitled to be paid by Shaylor shall not be paid forthwith (but only following issue of the Final Certificate under the Main Contract and then in accordance with clause 21.8 (b))”.

In February 2012, following settlement of outstanding disputes between Ashley and Shaylor under the main contract, Ashley issued a certificate of completion of the works under the main contract, although the works had been completed almost a year previously.   Under the terms of the main contract, this certificate was a necessary precursor to the issue of the Final Certificate.

R&C applied to the Court for an order for immediate payment of the sum found due by the Adjudicator on the basis that the contractual machinery relating to certification in the main contract had broken down.

ISSUES:

The Court was asked to decide the following issues:

  • Whether the Adjudicator had been misled in relation to the Final Certificate.
  • Whether the main contract certification machinery had broken down and, if so, whether R&C was entitled to immediate payment of the sum determined by the Adjudicator.
  • Whether R&C was entitled to payment of the final payment without any deduction or set off.

DECISION

The Court held:

  • The Adjudicator was not deliberately misled by those acting for Shaylor. 
  • Even if the Adjudicator had been told (if it was the fact) that Ashley had wrongly refused to issue the certificate of completion of the works under the main contract, it would and should have made no difference to the outcome.  If the provisions of the sub-contract regarding the preparation of the final account and of the main contract regarding the issue of the completion certificate and then the Final Certificate had been complied with, the Adjudicator’s decision would still have pre-dated the earliest date by which the Final Certificate ought to have been issued.  Consequently he would inevitably have concluded that the sum to which he found R&C was entitled on its final account was not payable immediately but only following the issue of the Final Certificate pursuant to the terms of clause 21.8 (b) of the sub-contract.
  • As there was no evidence as to the existence of a dispute about the actual date of completion or the absence of the completion certificate, it could not be inferred that the contractual machinery of the main contract had broken down.  In any event, a refusal by Ashley to issue the completion certificate (if there was such a refusal) did not mean that the contractual machinery had broken down.  The problem was capable of being cured and was in fact cured in this case by the agreement to issue the certificate in February 2012. 
  • In light of the above conclusion in relation to the breakdown of the contractual machinery, R&C was not entitled to immediate payment of the final sub-contract sum as determined by the Adjudicator.
  • There was nothing to prevent Shaylor from setting off against the sum found due by the Adjudicator any sum that it would have been entitled to set off against the Final Payment under clause 21.8 of the sub-contract.  Clause 21.8 specifically provided for this and the reference to “any” sum in the Adjudicator’s decision was a pointer to the fact that the Adjudicator had the withholding provisions of clause 21.8 in mind when he wrote that paragraph.
  • Accordingly R&C’s application failed.

This summary was provided by CMS Cameron McKenna LLP.

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

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