Adjudication
|
KEYWORDS: |
Housing Grants Construction and Regeneration Act 1996, challenging jurisdiction, notices, Sections 110(2) and 111,set-off, abatement, Judge Bowsher. |
Most disputes in adjudication relate to non-payment of interim valuations. The problem faced by an adjudicator is how far he has to enquire into the measure of the works set out in the application for payment, if there has been no notice by the paying party either under Section 110(2) nor Section 111 of the Housing Grants Construction and Regeneration Act 1996. It is commonly argued that in the absence of any notices the Adjudicator should simply order payment of the amount applied for. The contrary argument is that the amount to be paid is only the amount actually due, and that notices are not required for work that has not been carried out. Accordingly it is argued the adjudicator must decide the measure of the works even in the absence of notices.
Guidance is now given in the decision in Whiteways Contractors (Sussex)Limited v Impresa Castelli Construction UK Limited (Aug 2000) TCC.
Whiteways are plastering sub-contractors and were engaged by Impresa in connection with the construction of the Kingsway Hall Hotel in London. The standard form of contract was the JCT DOM/1 standard form. A disputes arose which was referred to adjudication in September 1999 and decided in November 1999. A further dispute arose and in January 2000 notice of intention to refer the dispute to adjudication was given and in February 2000 the same adjudicator was appointed as previously. He gave his decision in April 2000 ordering Impresa to pay Whiteways £81,1777.45 plus VAT. No payments were made and on 30th June 2000 Whiteways applied for summary judgment against Impresa to enforce the adjudicator’s decision.
Impresa objected to enforcement on the basis that the Adjudicator had acted in excess of jurisdiction. Impresa had previously raised the same issue of jurisdiction before the Adjudicator who had decided the matter. The question which arose was whether that decision was now binding on the parties. His Honour Judge Bowsher Q.C. referred to the decision in Fastrack Contractors v Morrisson (2000) in which it was held that a party challenging jurisdiction had four choices:
Agree to widen the jurisdiction of the Adjudicator to decide the issue of jurisdiction; or
Refer the issue of jurisdiction to a second adjudicator, without halting the first adjudication; or
Seek a declaration from the Court that the Adjudicator lacked jurisdiction - only of use if the adjudicator is still to be appointed or the parties agree to put the adjudication in abeyance pending the Court’s determination; or
Reserve its position in the adjudication, then challenge enforcement of the decision.
Examination of the correspondence to the Adjudicator showed that the parties had adopted the first course. The Adjudicator’s decision on his jurisdiction to decide the dispute was therefore binding on the parties until finally determined by arbitration, legal proceedings or agreement.
The next issue was how far the Adjudicator should enquire in determining the amounts due on the application for payment. The Act refers to two notices. The first notice is under Section 110(2) and identifies the amount the payer considers is due for payment together with the basis of his assessment. The second notice is under Section 111 and allows the payer to state the amount he is to withhold and the grounds for doing so. If operated properly then each party will know the amount that is to be paid at the Final Date for payment.
The payer is not required to give a Section 111 notice. If he does not then he cannot legitimately withhold payment. The Act itself makes this clear, but it is not clear whether the Section 111 notice is only required for set-off or whether it is also required for abatements. Simply put, set-off will normally relate to cross-claims by the payer whereas abatement will normally be a deduction in the value of the work due to defects for example.
Impresa submitted that it was entitled to rely on matters of abatement (though not of set-off) to reduce the sum ordered by the Adjudicator to be paid. Impresa sought to reduce the sum ordered by the amount of alleged overpayment on previous applications due to
payments had previously been made for bathroom bulkheads which had not been supplied nor installed, and
the mark up for overheads and profit was excessive on earlier applications.
Impresa submitted that under the law of abatement the sums never become due and therefore did not fall under Section 110(2) of the Act. It was not necessary that it should have given a notice, but could raise the issue after the Adjudicator’s decision and in enforcement proceedings.
His Honour Judge Bowsher Q.C. recognised that it was common for a party to a building contract to make deductions from sums claimed on either the Final Account or earlier interim applications on account of overpayments on previous applications. He held that it did not matter whether these deductions were by way of set-off or abatement, the Act required notice of such deductions. He held that the Act made no distinction between set-offs and abatements and there was no reason why it should have done so. Judge Bowsher saw no reason to strain the language of the Act to find some distinction between its applicability to abatements as opposed to set-offs.
He held that in considering a dispute, the Adjudicator will make his own valuation of the claim before him and in doing so, he may abate the claim in respects not mentioned in the notice of intention to withhold payment. Judge Bowsher gave an example. If there is a dispute about Valuation 10, the Adjudicator may make his own valuation of the matters referred to in Valuation 10 whether or not they are referred to specifically in a notice of intention to withhold payment. But it would be wrong for him to enquire into an alleged over-valuation on Valuation 6, whether the paying party alleges abatement or set-off, unless the notice of intention to withhold payment identified that as a matter of dispute.
Accordingly Judge Bowsher rejected the submissions of Impresa and gave judgment for the amount claimed, enforcing the Adjudicator’s decision.
The case is a useful clarification for Adjudicators undertaking valuations in the absence of Section 110 and Section 111 notices. In practice the value of work paid in past valuations will normally be examined by an Adjudicator if an issue is made before he makes his decision. It is normal in the construction industry for each interim valuation to be provisional and subject to adjustment in subsequent valuations. Payments are on account and not binding on subsequent valuations. Normally each application prompts a fresh measure of the works carried out.
The effect of the decision is to require adjudicators to examine only those matters raised in the valuation. If the valuation is a complete re-measure of the work carried out, then I suggest the Adjudicator must decide the measure of all the works. If the valuation simply lists the value of previous valuations and then list additional matters since the last valuation, the Adjudicator is then limited to deciding the measure of the works since the previous valuation. In carrying out his valuation the Adjudicator cannot I suggest examine issues of abatement due to defects or set-off or in the second type of valuation above abatement of previous valuations, unless raised in a Section 111 notice.