For the purposes of the Scheme, in the context of the contract in question, the "value of work" was that which the paying party considered to be due under the contract having taken account of answers to queries. Determining what sum is due under the contract does not generally involve the issue of a withholding notice. The party making the payment can still establish what is truly due or to be paid by use of the appropriate contractual procedure or proceedings.
HHJ Humphrey Lloyd, London TCC.
28 May 2004
Alstom employed Jarvis as its subcontractor for works under the I Chem E Model Form for Process Plants – Sub Contracts, with bespoke amendments. Jarvis were to be paid the cost of the works and a management fee, and the contract contained a 'pain/gain' mechanism whereby if Jarvis had not reached the target cost by the end of the works, they would be entitled to a proportion of the saved cost; if the project overran, Jarvis would absorb an agreed proportion of the extra cost. The Main Contract and the Sub-Contract both overran, and Alstom expected Jarvis to absorb £800,000.
The payment provisions in the contract stated that: "The Subcontractor issues an application for payment every 28 days… The Contractor shall in the same week of such application, put to the Subcontractor any questions or queries in relation to information provided, and failing a satisfactory response from the Subcontractor, exclude such items from the certificate as disallowed costs. Such items may be included in a subsequent certificate when the Contractor has established their validity". The parties made 3 referrals to adjudication in total, of which the first two are relevant to this court decision. In each case, Alstom failed to raise specific queries within a week as required, or issue a withholding notice, following the issue of Jarvis' applications for payment. In the first adjudication, Alstom's reason for not issuing a withholding notice was that the sum it sought under the 'pain/gain' mechanism in the contract cancelled out the sums Jarvis had applied for, thus no money was due. The adjudicator decided that Alstom's queries had been too general to comply with the contract and that it should have issued a withholding notice because the purpose of a withholding notice was to justify any difference between the amount certified and the certificate value. He also decided that the Scheme for Construction Contracts applied because the adjudication and payment provisions in the contract did not comply with the HGCRA. Alstom paid the award, but then failed to raise queries in time in response to the next application for payment which was delivered by Jarvis to the wrong address. Alstom argued that when it did submit queries it did not receive a satisfactory response. The adjudicator made a further award against Alstom.
Alstom commenced proceedings to recover the sum paid to Jarvis following the first adjudication and to set aside the second decision. Jarvis commenced proceedings to enforce the second decision and to strike out certain paragraphs of Alstom's Particulars of Claim. The Judge heard both matters together.
Contrary to what the Adjudicator in the first adjudication decided, the Judge held that the contractual provision for determining the final date for payment did comply with the Act. With regard to the requirement to issue a withholding notice, Alstom submitted that under s111 of the Act a withholding notice is not required where what the paying party "withholds" is a sum which is not "due under the contract". Jarvis argued that since Alstom had not given a withholding notice under s111 of the Act, Alstom had to pay Jarvis what Jarvis had applied for. The Judge disagreed with Jarvis: the contractual provisions should apply to determine what was due, and thus, provided the contractor raises queries as required under the contract, and gets no satisfactory explanation, then an item queried may be excluded from the certificate. For the purposes of s111, the amount due is the amount certified.
Further, Alstom submitted that the Scheme's provisions meant that the most that could ever be payable was the "Contract Price", and that the adjudicator was wrong in law and had acted outside his jurisdiction because he failed to resolve the issue of deciding what the Contract Price was. Jarvis argued that this was wrong and inconsistent with Alstom's actions because it had already paid Jarvis much more than the "Contract Price". The Judge found in favour of Jarvis: Alstom's case on the meaning of "Contract Price" was too literal and not consistent with reality. The Judge concluded that, for the purposes of the Scheme, the value is that which Alstom considers to be due, having taken account of any answers to any questions or queries. Thus Alstom's argument regarding the adjudicator's lack of jurisdiction failed.
Alstom submitted that it had to pay the amount shown on the certificate issued under the contract, which it had done, so Jarvis' remedy was to seek to have the relevant certificates opened up revised and reviewed; Jarvis would have to commence separate proceedings to do this. The Judge agreed that Rupert Morgan Building Services (LLC) Limited v Jervis supported Alstom's submissions on this. The Judge held that determining what is due does not generally involve the use of a withholding notice and, even though a notice was not given, the party making the payment can still establish what was truly due or to be paid by the use of the appropriate contractual procedure or proceedings. If Jarvis disagreed with Alstom's valuation it could ask for a determination of what was truly due based on its application and on the answers it had given to questions or queries raised. Whether or not the Scheme applied, the amount due was not that which Jarvis considered to be due to it, but that which Alstom considered to be due. The Judge considered that the adjudicator had failed to deal with a dispute referred to him, or did not ask himself the right question, namely what was due to Jarvis. As such, he held that Alstom was right in its submission that the adjudicator's decision was not that which he was authorised to make; the decision in the first adjudication was wrong and invalid.
The final issue that the Judge considered was whether the adjudicator was wrong in deciding that Alstom had failed to ask sufficiently specific and focused questions and queries within the time specified in the contract. The Judge considered that the material submitted was voluminous and therefore on the one hand it was incumbent on Alstom to be specific but on the other hand it did not have the time to be too specific as it only had a week to turn round the application. The contract did not say that queries have to be specific or focused; they could well be general, if appropriate. The Judge considered that, since the second application in question was really the final account, Alstom was entitled to a meticulous account from Jarvis. As Jarvis had not complied with either the contractual timetable or the timetable under the Scheme (because it submitted its application at the wrong time in the four-weekly timetable and sent it to the wrong address), Alstom was not obliged to consider it until the following period. The Judge criticised Jarvis for expecting Alstom to digest in a week material that was effectively the final account. Alstom had raised queries in compliance with the timescales set out in the contract. Alstom was not required to issue a certificate as to the value of the work for the purposes of the Scheme or the contract since this was dependent on Alstom having answers to its questions to be able to determine what was due. The absence of a withholding notice is irrelevant.
In conclusion, the Judge held that the adjudicator was wrong to decide that Alstom had failed to issue a withholding notice. Accordingly, the adjudicator's decision was set aside and Jarvis was not entitled to any payment in respect of the application in the second adjudication, or to summary judgment. Thus, the order sought by Alstom restraining Jarvis from enforcing or seeking to enforce the adjudicator's decision from the second adjudication was no longer necessary even if it was justifiable.
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