Avoncroft Construction Ltd v Sharba Homes (CN) Ltd [2008] EWHC 933 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

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

Where an adjudicator makes a decision against a party to whom liquidated damages are due, there may not be a right to set-off open to that party.  For there to be a right to set-off the parties should raise that issue as part of the adjudication to avoid it falling outside the adjudicator’s jurisdiction.

Her Honour Judge Kirkham  – Queen’s Bench Division,
Technology and Construction Court

Background

The claimant and defendant were parties to a building contract (which was terminated on 14 September 2007), in relation to which a dispute arose.  This dispute was referred to adjudication.  The adjudicator decided that money was owing to the claimant.  The claimant sought to enforce the decision and also applied for summary judgment.  The defendant resisted enforcement of that decision because it felt it was entitled to set-off the amount decided to be owing against liquidated damages (LADs) due to it from the claimant under the building contract.  In the meantime a second adjudication was commenced by the defendant.  The defendant sought a stay of execution or an order for the monies to be paid into court until the second adjudication was decided.

In addition the defendant served a withholding notice on 15 February 2008 for the LADs on the basis that the final date for payment of the sum awarded by the adjudicator was 21 February 2008.

Issues

The court considered whether LADs were payable by the claimant at all.  The contract did not provide for sectional completion, however, the defendant nevertheless took partial possession before the completion of the works.  It was argued that the principle in Bramall & Ogden, 1983 applied.  In that case the contract provided for LADs at a rate for each uncompleted dwelling and could therefore not be reconciled with partial possession.  Similarly as there was no provision for partial possession in this case the clause allowing the deduction of LADs may fail.

The court also addressed the issue of whether the defendant could set off its LADs against the adjudicator’s decision and whether the withholding notice, served by the defendant and in respect of the monies decided to be owing by the adjudicator, was valid.

Decision

It was held that the principle in Bramall & Ogden did apply and so the defendant could not claim LADs.  HHJ Kirkham also stated that if LADs were payable, they could not have been set off against the adjudicator’s decision as the adjudicator did not address the question of entitlement to LADs, rather whether the claimant was entitled to an extension of time.  The contract did not provide for set-off either and in fact obliged the parties to adhere to the decision of the adjudicator, which itself gave no right of set-off.

In spite of her earlier decisions, HHJ Kirkham considered the question of the withholding notice.  The adjudicator’s decision was only delivered 6 days before the required date for payment under his decision.  The contract did not deal with the service of withholding notices against the decision of an adjudicator and the Scheme for Construction Contracts, the ‘fall-back position’ in cases where the contract fails to provide adequate adjudication provisions, stipulated that a withholding notice be served at least 7 days in advance of the due date for payment.  As it was not so served at least 7 days in advance of the due date for payment, the notice was invalid.

In addition, HHJ Kirkham, having considered the facts, did not award the defendant a stay of execution and did not order monies be paid into court by the claimant.

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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