The parties are obliged to ensure that the Adjudicator's award is given effect. Withholding notices need to be served prior to adjudication and to be considered and dealt with as part of the adjudication. It would defeat the purpose of adjudication if an adjudicator's decision could be defeated by a withholding notice in respect of events which occurred subsequent to the commencement of the adjudication.
HHJ Gilliland QC, QBD (TCC) Salford District Registry
19 March 2004
DGH engaged MJG to do work under a JCT 1998 With Contractor's Design standard form (with amendments). A dispute arose as to MJG's entitlement to payment pursuant to interim application number 31 and was referred to adjudication. The payment mechanism is set out in clause 30.3. The Adjudicator decided that, following receipt of application 31, DGH had not given any written notice, either of the amount to be paid or any sums to be withheld, in response, so MJG was entitled to payment of the full sum set out in application 31. DGH failed to pay, and MJG applied to the Court for summary judgment.
DGH resisted enforcement of the Adjudicator's award on two grounds.
The first ground was that before the Adjudicator had issued his award, MJG made an application for further payment under application number 33. DGH responded by issuing a valuation certificate for significantly less than the amount MJG had applied for in application 31. DGH claimed that this was an effective notice under cl30.3.3 and was a correct valuation, whereas the Adjudicator's decision was a valuation of the works in respect of application 31. DGH argued that its valuation certificate had pre-dated the Adjudicator's decision and so it had the right to the return of sums not yet awarded by the Adjudicator regarding application 33.
The Court held that giving notice under cl30.3.3 on a subsequent valuation cannot affect what amount was payable under an earlier application. Cl39A.7.2 obliges the parties to ensure that the Adjudicator's award is given effect, and under cl39A.7.1, his decision is binding until final determination of the dispute by arbitration, litigation or agreement. The subsequent application and valuation of it could not be any such final determination.
DGH also relied on Rupert Morgan Building Services v David and Harriet Jervis to argue that, under cl30.3, an overpayment could be recouped on a subsequent application on the basis that that case noted that errors in previous certificates could be corrected in later ones. However, the Judge held that whilst through the processes of clause 30 the employer could determine that no further sums were payable to the contractor there was nothing in the contract which obliged the contractor to repay any amounts he had already received (or which had been determined he should receive) in respect of previous applications.
DGH's second ground for resisting enforcement was that, two days after the Adjudicator issued his decision, DGH gave notice to MJG of withholding LADs against the Adjudicator's award. Because the LADs plus the alleged excessive valuation set out in the valuation certificate in respect of application 33 amounted to more than the Adjudicator's award, DGH claimed there was good reason for not enforcing the award or for granting a stay of enforcement of it until the decision on a separate dispute concerning application 33 had been issued. Further, DGH submitted that it would be inappropriate to enforce MJG's right to payment when DGH could itself commence proceedings to recover LADs.
The Court held that, when the dispute was referred to adjudication, no notice of non-completion had been served pursuant to cl24.1. This was despite the delay for which DGH was now claiming LADs having occurred nearly a year before. The question of LADs was also not raised in the adjudication and the Adjudicator had reached his decision without regard to that possible issue, so DGH could not now rely on LADs as a defence to the enforcement proceedings, particularly as the matter of LADs could have been pursued long before the adjudication started. The language of cl39 was inconsistent with allowing rights of set-off against an adjudicator's decision. The withholding notice served in relation to LADs was not valid as it had not been served within 35 days from the receipt of application 31 by DGH as required by cl30.3.6. Cl39A.7 makes clear that the Adjudicator's award is to be enforced as it stands and is not to be subject to deductions. The Court considered The Construction Centre Group v The Highland Council along with VHE Construction v RBSTB Trust Company and considered they provided confirmation that no withholding notice could be served in relation to an adjudicator's decision. A withholding notice needs to be served prior to adjudication and to be considered and dealt with as part of the adjudication. The Court said that it would defeat the purpose of adjudication as being to provide a quick and effective remedy on an interim basis if an adjudicator's decision could be defeated by a withholding notice in respect of events which occurred subsequent to the commencement of the adjudication. The judge did not conclude that the adjudicator's decision gave a fresh right to payment with new rights of notification and withholding – rather it confirmed the obligation to pay the final application.
With regard to DGH's submission that there should be a stay of enforcement pending a decision by the Adjdicator in the subsequent adjudication concerning application 33, the Court decided this would be inappropriate. That decision in a subsequent adjudication could not affect MJG's entitlement to summary judgment regarding the decision of the Adjudicator on the earlier application 31. No suggestion had been made that the claimant would not be able to repay any monies if at the end of the day it was found to have been overpaid. The matter was one of cashflow; the contractual provisions were clear and there was no reason to keep the claimant out of its money.
The Court therefore gave judgment for MJG and refused a stay of enforcement.