William Verry Ltd v Camden London Borough Council [2006] EWHC 761 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

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

The payment of sums awarded in an adjudicator’s decision may not be resisted on the grounds that:

i) Those sums are inconsistent with the sum certified in a certificate issued subsequent to the certificate which forms the subject matter of the adjudicator’s decision.  The adjudicator’s decision is binding pending final determination of the disputes.

ii) The opposing party has a counterclaim for unliquidated damages for breach of contract in respect of defects, which is currently the subject of an on-going adjudication.  There is no right of set-off against an adjudicator’s decision, otherwise that would defeat the intention of Parliament.

Mr Justice Ramsey – Queen’s Bench Division, Technology and Construction Court

Background

A contract between Camden and Verry for the refurbishment of a housing scheme gave rise to a number of adjudications.  Very briefly, the chronology of events was as follows.  Practical completion of the works took place in December 2003 and the contract administrator issued the interim certificate in January 2004.  In September 2005, the contract administrator issued the adjusted final account. 

In October 2005 (i.e. after the adjusted final account had been issued), Verry launched Adjudication No.3, in which it sought payment from Camden in accordance with the interim certificate.   After deduction of retention, sums previously paid, etc., the adjudicator decided that the sum due by Camden to Verry under the interim certificate was £532,351.61.

Camden disputed the valuations provided by the quantity surveyor that had formed the basis for the interim certificate and therefore resisted payment of this adjudication decision.  Further, Camden launched Adjudications Nos.4 and 5.  Adjudication No.4 disputed the valuation that formed the basis of the final certificate and Adjudication No.5 claimed damages for breach of contract in respect of alleged defects.

Verry then brought an application for summary judgment for enforcement of the adjudicator’s decision in Adjudication No.3.  Camden advanced two main arguments in opposition to Verry’s application for summary judgment.

Camden’s defences

Final Certificate

Camden argued that the determination of the interim payment by the adjudicator in Adjudication No.3 had been superseded by the final certificate issued by the contract administrator (the final certificate stipulated that a balancing payment was due by Verry to Camden as a result of liquidated damages being payable for delays in the works).

The Housing Grants Act required construction contracts to include a term that an adjudicator’s decision is binding.  However, the statute did not stipulate that the enforcement of those decisions would have a status that would trump all contractual obligations agreed between the parties, nor did it impose any obligation to accept an adjudicator’s decision as binding.  The contract stipulated that adjudication was without prejudice to the parties’ other rights and obligations under the contract.  Accordingly, the final certificate, which was issued in accordance with the contract, superseded Verry’s entitlement to the interim payment award stipulated by the adjudicator in Adjudication No.3.

Defects Counterclaim

In addition, Camden submitted that it was entitled to set off the damages in respect of alleged defects claimed in Adjudication No.5 (which was pending) against the sums due under the adjudicator’s decision in Adjudication No.3.

Decision

Final Certificate

Where there are potentially competing disputed rights and obligations, those disputes must give way to the enforcement of the decision of an adjudicator.  Otherwise the disputed rights and obligations would defeat the binding nature of the adjudicator’s decision and the intention of Parliament that such adjudicator’s decision be complied with in the interim.  The contract must be construed so as to give effect to the intention of Parliament rather than to defeat it.  Any clauses in the contract that would obstruct the intention of Parliament must be struck down.  The adjudicator’s decision in Adjudication No.3 was enforceable against Camden.

Defects Counterclaim

The effect of the statutory provisions is to exclude a right of set-off from an adjudicator’s decision.  In ordinary proceedings, raising a cross claim would operate as a defence in equity and prevent summary judgment from being given, and the matter would have to go to trial.  However, this principle does not apply in the context of an adjudicator’s decision because the parties have agreed that they will comply with the adjudicator’s decision.  They cannot get out of the obligation to comply by raising a cross claim.

If and when the adjudicator under Adjudication No.5 decided that sums were due to Camden in respect of the alleged defects, then Camden would be entitled to payment on the basis of that decision, but there was no right to deduct sums from the adjudicator’s decision in Adjudication No.3 in the interim.

This summary was provided by CMS Cameron McKenna LLP.

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

Click here to read full-screen | Click here to print the case