Thameside Construction Company v Steven & Anor [2013] EWHC 2071

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

summary

When an adjudicator makes an order that one party must pay another, the order must be honoured and no set-off or withholding against payment of that amount should be permitted. However, there are limited exceptions to this rule, namely where: (1) there is a specified contractual right to a set-off which does not conflict with the statutory requirement for immediate enforcement; (2) an adjudicator has simply declared that an amount is due rather than having directed that it should be paid; and (3) an adjudicator’s decision permits further set-off.

Technology and Construction Court, Mr Justice Akenhead.

Background

Mr and Mrs Stevens (“Mr and Mrs S”) entered into a contract with Thameside Construction Company Limited (“Thameside”) in July 2010, under which Thameside was to carry out extensive extension, construction and conversion works at their home. The contract included extension of time provisions, a liquidated damages clause for late completion and provision for interim and final payment certificates.

There were substantial variations and delays. Time was extended to 8 August 2011, but the works were not finished by that date. On 12 June 2012 Thameside submitted an Interim Application No 16 in the sum of £1,310,998.39. Mr and Mrs S paid £1,101,597.02. On 23 March 2013, a Certificate of Non-Completion was issued, declaring that Thameside had not achieved Practical Completion on 8 August 2011.

Thameside commenced an adjudication against Mr and Mrs S on 1 March 2013 seeking payment of the remainder of the amount it had applied for under Interim Application No.16. In response Mr and Mrs S admitted that they had paid £1,101,597.02 but argued that this did not address the question of whether practical completion was achieved. They averred that the Adjudicator had not been asked to determine this question and it was therefore outside his jurisdiction. Their response went on to raise a counterclaim seeking £88,891.40 damages for defective work and £60,000 liquidated damages for Thameside’s failure to complete on time, calculated for a period ending on 14 March 2012, when Mr and Mrs S asserted that they had taken possession of the final part of the works. In reply Thameside argued that no counterclaim could be advanced because no withholding notice had been issued. Thameside denied that there were defects and so far as liquidated damages were concerned asserted that it was entitled to an extension of time up to 23 December 2011 when, it said, Mr and Mrs S took full possession of the site.

In his decision, issued on 24 April 2013, the Adjudicator approached the matter as if it were an application for a further Interim Certificate whilst at the same time acknowledging that the parties intended it to act as a final account. He did not address the issue of when practical completion occurred, and therefore whether Mr and Mrs S were entitled to liquidated damages, stating that the matter was left over for ‘another day’. He found that the balance due on the final account after deductions in respect of the defective or outstanding work was £88,606.22 and he ordered Mr and Mrs S to pay Thameside that amount within 14 days.

On 30 April 2013 the contract administrator issued an interim certificate for the amount that the Adjudicator had ordered to be paid. On the same day, Mr and Mrs S issued a ‘Withholding Notice’ stating an intention to withhold £40,000 in relation to liquidated damages. They duly paid the balance of the amount certified.

On 10 June 2013, Thameside issued proceedings for £40,000.

Issue

Whether Mr and Mrs S were entitled to set-off £40,000 for a liquidated damages claim against the Adjudicator’s decision.

Decision

The court held:

  • In order to determine whether a party can make a set-off against sums which an adjudicator has said are to be paid, the Court must look at what the adjudicator has decided, which means looking at the dispute as it was referred to him or her. This may involve looking at the Notice of Adjudication, the Referral Notice, the Response, other ‘pleading’ type documents and at the construction contract but primarily it will involve looking at the decision itself.
  • Generally, adjudicator’s decisions which order one party to pay another must be honoured, and no set-off or withholding against payment of that amount should be permitted.
  • However there are limited exceptions, namely where:

(a)                there is a specified contractual right to set-off which does not conflict with the statutory requirement for immediate enforcement;

(b)                an adjudicator has simply declared that an amount is due rather than having directed that it should be paid; and

(c)                an adjudicator’s decision permits further set-off.

  • None of the limited exceptions above applied in this case. The Adjudicator had ordered payment in 14 days. He had made it clear that he had allowed nothing for liquidated damages and that there should be no set-off other than the deductions for defective and outstanding work he had already allowed in his calculation of the sum due. It would be wrong to interpret the decision as if it was an interim certificate or valuation under the contract, or deciding the value of an interim certificate and ordering it payable in 14 days in accordance with the contract machinery.
  • The confusion had arisen because the Adjudicator had decided to leave the issues of practical completion, extensions of time and liquidated damages to ‘another day’. In doing so, the Adjudicator had fallen into error. The matter of liquidated damages was within his jurisdiction to decide and was part of the dispute he was asked to resolve. However, counsel for Mr and Mrs S had disavowed any challenge to the decision based upon the failure of the Adjudicator to fulfil his jurisdiction. The reality was that Mr and Mrs S had actually paid out part of the sum ordered and in that sense had accepted that the Adjudicator had jurisdiction.
  • Mr and Mrs S were ordered to pay Thameside £40,000 plus VAT, interest and costs.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

 

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