Adjudication
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KEYWORDS: |
Housing Grants Construction and Regeneration Act 1996, JCT Minor Works Form 1998 Edition, Amendment MW11, withholding, right of set off against adjudicators decision, liquidated damages, Judge Hull. |
Judge Hull in Dumarc Building Services Limited v Mr Salvador Rico [2003] was required to decide whether Clause 2.3 of the contract which purported to provide a right to set-off against an adjudicator's decision was effective.
The works were carried out by Dumarc on the residential home of Rico as the employer and therefore the contract was excluded from the HGCR Act 1996 by Section 106 and was not a 'construction contract' under the HGCR Act 1996.
The contract was the JCT Minor Works form of contract 1998 edition with amendment MW11. The amendment provided for disputes to be resolved by adjudication binding on the parties until the dispute was finally resolved by litigation or arbitration, in accordance with Section 108 of the HGCRA 1996.
The Architect had certified that the sum of £13,558 was due to Dumarc in an interim certificate. Rico served a withholding notice under clause 4.2.2, seeking to withhold sums for defective works, non-performance and liquidated damages.
Dumarc referred the resulting dispute to adjudication and the Adjudicator decided that the Architect had over-certified and reduced the sum due to Dumarc.
Dumarc applied for summary judgment to enforce the adjudicators decision before Judge Hull and Rico counterclaimed for liquidated damages.
Judge Hull held that the Adjudicator had not determined whether or not Rico was entitled to deduct liquidated damages from the certified sum.
Rico argued that clause 2.3 of the contract gave an Employer the right to set off liquidated damages from 'any monies' due under the contract. Rico argued that "any monies" due included sums due under an adjudication decision, which was purely contractual in nature. Rico relied upon the third principle of Judge Thornton in Bovis Lend Lease Limited v Triangle Development Limited [2003] that where other contractual terms clearly had the effect of superseding, or provide for an entitlement to avoid or deduct from, a payment directed to be paid by an adjudicator's decision, those terms would prevail.
Dumarc argued that clause 2.3 should not be interpreted to provide a right of set off against adjudication decisions, both on its plain reading and following Ferson Contractors Ltd v Levolux AT Ltd (CA) [2003]. Dumarc contended that the express purpose of Amendment MW11 was to bring the contract into compliance with the HGCRA. Therefore, the contract should be interpreted to give effect to the adjudication provisions so that it provided an effective means of dispute resolution. Dumarc concluded that accordingly, the contract should be construed against allowing sums to be set off against an adjudicator's decision or, if this was not possible, the offending clause should be struck down, following Lord Justice Mantell's judgment in Ferson v Levolux.
Clause 2.3 as amended also provided that an Employer who sought to set off liquidated damages against sums certified in interim or final certificates should provide a withholding notice at least 5 days before the last day on which payment was due. Dumarc therefore argued that clause 2.3 was only intended to refer to sums certified and not to sums awarded under an adjudication. Dumarc argued in the alternative that a fresh withholding notice should be been sent following the adjudication.
Judge Hull held that clause 2.3 did not provide a party with a right to set off a claim for liquidated damages against an adjudication decision. He held that to hold otherwise would drive a coach and horses through the HGCRA. He held that through the detailed contract provisions the parties had agreed to resolve disputes by way of adjudication.
Judge Hull held that the effect of Rico's submissions would be to read into clause 2.3 the word 'including sums owed under an adjudication' and he declined to do this.
Judge Hull further held that Rico was not assisted by Judge Thornton's decision in Bovis that an express term of the contract could provide a right to set off claims against an adjudication. The Judge observed that the decision had been disapproved in that respect by the Court of Appeal in Ferson v Levolux and he therefore held would not be followed.
Judge Hull observed that the Court of Appeal judgment in Ferson v Levolux had brought about a welcome simplification of the law. The purpose behind it was readily understandable. Judge Hull considered that having regard to the purposes for which Part II of the HGCRA was enacted, if the Court allowed parties to set off sums against an adjudicator's decision, this would prevent adjudication from being an effective remedy.
Judge Hull ordered that the Defence and Counterclaim be struck out and judgment entered for Dumarc with costs.
The judgment of Judge Hull is one of the first applications of decision of the Court of Appeal in Ferson v Levolux showing the restriction on the principles derived by Judge Thornton in Bovis.