David McClean Contractors Ltd v The Albany Building Ltd [2005] TCC 101/05

This summary was provided by CMS Cameron McKenna LLP.

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

There is no right to set-off against sums found due by an adjudicator on the basis that a party might be entitled to monies if it succeeds in a claim that it puts forward at a later date.  Allegations of a breach of natural justice by the adjudicator, lack of jurisdiction, and that the adjudicator had already decided the issue in an earlier adjudication, were all rejected on the facts of the case.

His Honour Judge Gilliland QC, Salford District Registry, Technology & Construction Court

Albany engaged David McLean Contractors (DMC) as contractors under a JCT form of building contract.  Disputes arose between the parties regarding certain interim payments and Albany’s entitlement to deduct liquidated and ascertained damages (LADs) following the issue of seven notices of non-completion.  Those disputes were referred to adjudication.  On 6 October 2005, the adjudicator awarded DMC the sum of £1,333,214.18 plus interest and costs in respect of two interim certificates and made a declaration that the seven notices of non-completion issued by Albany were invalid.

Albany refused to pay the award and accordingly DMC applied for summary judgment for the sum awarded by the adjudicator.  Albany commenced summary judgment proceedings in respect of its counterclaim for £2,123,000 for LADs but later withdrew its application.  The Judge allowed DMC to amend its application to include a claim for payment under two further interim certificates.

Albany defended the application for summary judgment on five grounds:

 1.  The adjudication had proceeded on the basis of a contract that was not the contract between the parties and, accordingly, the adjudicator lacked jurisdiction.  Albany argued that, while the parties entered into a JCT building contract, they also entered into a supplemental agreement on the same date; that supplemental agreement effectively extinguished the JCT contract and replaced it with another contract.  The Court rejected this argument on the facts: the supplemental agreement simply varied the JCT contract in some respects (in particular, price) but did not in any way seek to vary the provisions of the JCT contract which were the subject matter of the adjudication.  Further, the supplemental agreement expressly incorporated the dispute resolution procedures of the JCT contract.

 2.  The adjudicator had conducted an earlier adjudication on the same point between the parties and had found in favour of Albany and, accordingly, the adjudicator had no jurisdiction to hear this dispute.   The JCT contract incorporated paragraph 30 of the CIC Rules which states “No issue decided by the adjudicator may subsequently be referred for decision by another adjudicator…”  The Judge held that the word “issue” in the CIC Rules “means the point which [the adjudicator] actually decided… there is a distinction between issue and claim.”   The first notice of intention to refer requested the adjudicator to decide “(1) whether the withholding notice… is valid and of no effect; (2) whether the deduction of [LADs] by Albany… is thereby invalid…” The Court found that the adjudicator had decided that the notice was valid but did not go beyond that; he had not ordered that Albany pay any money to DMC because he had found that the withholding notice was valid.  However, the second adjudication was concerned with whether there could be any valid deduction of LADs at all, having regard to the notices which Albany had served pursuant to the LADs provisions of the JCT contract.  That, the Court found, was a different issue and, accordingly, dismissed this ground relied on by Albany.

 3.  The adjudicator acted in breach of the rules of natural justice in that he had not dealt with an important part of the defendant’s case.  The Court rejected this argument, stating that the adjudicator had, in fact, dealt with the matter and his decision could not be criticised.

 4.  The Judge rejected Albany’s fourth ground of set-off, which was based upon the premise that Albany had served notices under clause 24.1 of the contract which triggered its right to claim LADs and set them off against  the sum awarded by the adjudicator.  The Judge ruled that, as the adjudicator had found that the notices of non compliance were invalid, there was no present and established obligation on DMC to the pay the LADs.  Following his previous decision in MJ Gleeson plc v Devonshire Green Holdings Ltd, and the Court of Appeal decision in Levolux v Ferson, the Judge held that Albany had no right to set off on the basis that it is going to be entitled to LADs if it succeeded in the claim which it later put forward.

 5.  DMC was not entitled to payment pursuant to the two later interim certificates as it had not shown that there was no reasonable defence to payment.  Albany sought to levy LADs in respect of those sums.  The Judge referred back to the adjudicator’s decision in the second adjudication that all of the seven notices of non-completion were invalid and upheld DMC’s assertion that the adjudicator’s decision in this was binding (until set aside by litigation or arbitration) and therefore Albany could not rely on those invalid notices.  The Judge also noted that no withholding notices had been served in respect of the sums in question and this was a further reason why the sums could be deducted.

 The Judge held that DMC was entitled to payment of the sums awarded by the adjudicator, and also of the sums payable in respect of the two later certificates.

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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