David McLean Housing Contractors Ltd v Swansea Housing Association Ltd [2001] EWHC 830 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

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

An adjudicator's decision is a decision concerning the parties' rights and obligations under the contract and does not create a debt in its own right. As a consequence, it is possible to serve a valid withholding notice against an adjudicator's decision and to withhold sums from amounts awarded by the adjudicator.

HHJ Lloyd QC, Technology and Construction Court

27 July 2001

D contracted with S to redevelop the former head post office in Swansea to provide housing. The contract was based on the standard form JCT 81 with Contractor's Design. Practical completion was achieved late in July 2000 and a payment application, no. 19 was made in autumn 2000, claiming money for direct loss and expense, money for the valuation of variations, measured work and certain adjustments.

In January 2001 D referred the following disputes to adjudication: D's entitlement to direct loss and/or expense and its entitlement to extensions of time; a proper valuation of variations carried out by D; the proper valuation to be ascribed to measured work; and release of retention.

The judge held that the adjudicator was correctly appointed pursuant to the Scheme (as the contract as drawn up did not meet the requirements of s108 HGCR Act 1996). The adjudicator decided that D was entitled to be paid under application no. 19. S paid but deducted some money for liquidated damages it claimed it was entitled to for the late completion. D sought summary judgment for the whole amount under application no. 19; S sought summary judgment to dismiss the claim and counterclaimed for the liquidated damages.

There was a question as to whether more than one dispute had been referred. On the face of it, the notice referred to six separate matters. The judge noted that the real dispute was about what payment ought to have been made as a result of application no. 19. He held that the application contained various elements; those elements were therefore reflected in the notice of adjudication and so the notice was valid in referring the dispute about the payment to be made which could not be decided without considering each such element. S submitted that loss and expense which is part of a dispute about an interim or progress payment may not be properly determined until any right to an extension of time is also determined. It was held that a decision as to the entitlement to an extension of time was a necessary and indispensable precursor to the direct loss or expense and the establishment of a proper or new rate to enable the rules for valuation of variations to be properly applied. Accordingly, the notice did not refer more than one dispute. It referred a single dispute namely: "How much should I be paid?"

The judge also considered the status of the adjudicator's decision: did it create a debt in its own right, upon which the claimant could sue, or was it simply a finding on the parties' rights and liabilities (so that the cause of action would be the right or obligation in dispute)? The judge found it was the latter. On that basis, the claimant's cause of action was the enforcement of its right to payment of the amount the adjudicator decided was due in respect of application 19. The amount of the adjudicator's decision had been included in certificate 20. The defendant had, however, issued a notice of withholding (in respect of its claim for liquidated damages) against certificate 20. The judge found that it was entitled to do so.

D's claim for summary judgment was dismissed as the judge found that S did have a reasonable prospect of success in maintaining that it gave effective notice of intention to withhold the liquidated damages. S's application for summary judgment on the counterclaim was allowed.

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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