Adjudication
Millers Specialist Joinery Company Limited v Nobles Construction Limited (August 2001)TCC

© Daniel Atkinson 2001 24 September 2001

The decision in Millers Specialist Joinery Company Limited v Nobles Construction Limited (August 2001)TCC is a useful summary and further explanation of the effect of the lack of a Section 111 Notice on the amount required to be paid in Interim Payments. It also provides useful explanation of the term "evidenced in writing" in Section 107(2)(c) of the Housing Grants Construction and Regeneration act 1996.

Millers claimed payment for goods and for joinery services supplied to Noble in connection with a construction project at the Triangle in the centre of Manchester. The amount claimed was £35,714.21 under 10 invoices rendered by Millers to Noble between 26 June 2000 and 26 September 2000 at or towards the end of the works. These were the only invoices which had not been paid.

An issue of tax which accounted for £16,005.96 of the sum claimed was not pursued in the application for summary judgment.

Two issues remained. The first issue was in relation to payment for mouldings. Noble stated that a sum of £7,127.40 was a double charge because the cost of mouldings was part of the agreed daywork rate which included supply of materials. Only 5 of the invoices included items for mouldings and one included a sum of £36.33 which was not included in the sum of £7,127.40 in respect of mouldings. Of the sum £7,127.40 Noble claimed a defence for £4,993.74 on the basis of a counterclaim or set off to recover monies previously overpaid on other invoices. As to the sum of £2,133.66 Noble claimed it was not payable under the invoices claimed because Millers was not entitled under the contract to charge for those items. It followed that a sum of £2,169.99 (£2,133.66 + £36.33) was in dispute under the invoices claimed. Millers claimed that the supply of mouldings was not part of the daywork rate.

His Honour Judge Gilliland QC held that on the limited evidence it was not possible to reach any conclusion on whether Miller or Noble were correct. There were only assertions and counter assertions. He held that it could not fairly be said that Noble had no real prospect of establishing at trial that the agreed rate included the cost of supply of mouldings.

The second issue was in relation to the sum of £8,400 for work of polishing joinery. Millers claimed the daywork rate of £22.50 applied and that they were entitled to be paid at the daywork rate for polishing new as well as existing joinery. Nobles claimed that Millers was not entitled to additional payment for polishing new joinery. Judge Gilliland found that none of the invoices in respect of which summary judgment was sought related to polishing new joinery. It was held that Nobles had not provided any evidence to show that the unpaid invoices included a charge for polishing new joinery. It was held that the claim to deduct or retain £8,400 could only be a claim to deduct overpayments which had already been made under other unspecified invoices.

It was held that it could not properly be said that Nobles had no real prospect of establishing at trial that the work in question was outside the agreed rate and that a reasonable rate for polishing new joinery work was less than £22.50.

Judge Gilliland considered that if it was not for the matter of the Section 111 notice, that Millers would not succeed in obtaining summary judgment in respect of the disputed sums of £7,127.40 and £8,400. It could not be said that Nobles did not have a reasonable prospect of establishing either that it had valid counterclaims as equitable set-off or that £2,169.99 was not payable on the mouldings. However Millers relied on the absence of a Section 111 notice so that this had to be considered.

The first question was whether the agreement was a construction contract within Section104 of the 1996 Act. It was held that the agreement was clearly an agreement for the carrying out of "construction operations" as defined in Section105. The works agreed to be carried out were works of repair and or alteration and or decoration and included not only supply of materials but installation of joinery items. Accordingly the exception in Section105(2)(d) did not apply.

The agreement which was made was an oral agreement which was confirmed by letter. In those circumstances the agreement appeared to fall within Section107(2)(c) since the letter "evidenced" or recorded what had been agreed. Nobles relied on Section 107(4) which provides that an agreement is evidenced in writing if an agreement made otherwise than in writing is recorded by one of the parties or by a third party with the authority of the parties to the agreement. Nobles submitted that there was no evidence that the author of the letter had ever been authorised by the parties to record in writing what had been agreed and that accordingly Section 107(4) had not been satisfied. It was held that there was no evidence of such authority, and the inference was that the letter was intended to provide the author’s record of what had been agreed. This would have been entirely unnecessary if it had been understood expressly or impliedly that the author had been authorised to produce the record of what had been agreed.

Nobles then submitted that because Section107(4) had not been satisfied, the agreement was not "evidenced in writing" for the purposes of Section 107(2)(d). Judge Gilliland did not accept this submission. Subsection (4) did not provide an exhaustive definition of what was meant in subsection (2)(d) by the words "evidenced in writing". Subsection (4) was not expressed to be a definition setting out what was meant by the words "evidenced in writing". It merely stated that an agreement would be evidenced in writing when it has been recorded by a person with the authority of the parties. It did not state that this was the only way in which an agreement may be evidenced in writing.

It was held that the letter was a classic example of when an agreement can in the ordinary and accepted meaning of the words be described as being "evidenced in writing". Judge Gilliland held that it would be a remarkable result if a document which the parties accepted was a correct record of what had been agreed was not to be regarded as written evidence of what they had agreed. There was no rational justification for excluding such a document from the definition of a construction contract under Part II of the 1996 Act and insisting on a requirement that authority to record the terms must have been given before an agreement can be said to evidenced in writing. It was held that the words "evidenced in writing" in sub-section (2)(c) were used in their ordinary sense as referring to a written document which set out or refer to the relevant terms of the agreement and sub-section (4) was not intended to restrict the application of sub-section (2)(c). Sub-section (4), like sub-sections (3) and (5), was a provision which widened or extended the ambit of what was to be regarded as an agreement in writing for the purposes of Part II of the 1996 Act. Judge Gilliland considered that it was directed to the situation where at or after a meeting it had been agreed that someone should prepare minutes of what had been agreed and the effect of the provision was to make clear that the minutes themselves were to be treated as written evidence of the agreement even if it could not be shown that the minutes had actually been assented to by all the parties.

The next issue therefore was the effect of Section111(1) in relation to the 10 invoices. In the event that no valid notice of intention to withhold payment has been given a party to a construction contract was not entitled to withhold payment of sums "due under the contract". Nobles submitted that the sums of £7127.40and £8400 were not sums which were "due under the contract" and thus no notice of intention to withhold these sums was required to be given.

Millers submitted that the word "due" could not mean actually due because that construction

would rob Section111 of any effect. A "sum due" in Section111 must mean a sum of money arising in respect of works carried out under the contract. The words "under the contract" in Section111 (1) limited the sums in question to sums arising under the contract in question.

It was held that attention must first be directed to the sums which are claimed by the party seeking payment. The issue is whether those sums claimed can properly be said to be sums "due under the contract". If they are sums which are due under the contract, then the effect of Section111 (1) is to prevent the paying party from withholding payment if he has not given the requisite notice of intention to withhold payment. It was held that the clear effect of Section111 (1) was to prevent Nobles from exercising any right it may have had under the general law to recover that overpayment by way of deduction or retention from the 10 invoices unless the requisite notice has been given. No such notice was given. The circumstance that a previous overpayment may operate under the general law by way of an equitable set-off and thus technically be a matter of defence or that it may perhaps be able to be characterised as an abatement which technically in law prevents the amount claimed from ever becoming due did not obviate the need for the paying party if he wished to rely upon a right to deduct previous over payments to give the requisite notice under Section111(1). Section111 refered to "withholding" payment generally.

Judge Gilliland referred to and agreed with the decision of HH. Judge Hicks Q.C. in relation to set-off in VHE Construction Plc. v. RBSTB Trust Co. Limited [2000] BLR 187,192. It was clear from this decision that "the final date for payment of a sum due under the contract" may exist although technically if a valid notice had been given the paying party would have been entitled to exercise a right of retention or to withhold the sum in question and thus not have been obliged to make the payment.

Judge Gilliland considered the decision on the question of overpayments and abatement in Whiteways Contractors (Sussex) Limited v. Impresa Castelli Construction UK Limited. The decision made clear that where the claim to deduct is in respect of previous overpayments, a valid notice must be given.

It was held that the result was that Nobles was not entitled to refuse payment under the 10 invoices on the ground that it has already made overpayments under previous invoices. This left the question of the sum of £2,169.99 in respect of the mouldings. Nobles case was that those sums were not properly payable at all under the invoices and thus could not properly be said to be sums which are "due under the contract" within the meaning of Section 111(1). Judge Gilliland considered that support for Nobles’s contention could be derived from certain words used by HH.Judge Bowsher Q.C. in the Whiteways case. Notwithstanding that he had rejected the argument that a distinction should be drawn between a set-off and an abatement, the judge did go on to say that in considering a dispute, an Adjudicator would 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. But he ought not to look outside the four comers of the claim unless they have been mentioned in a notice of intention to withhold payment.

Judge Gilliland considered that if an adjudicator may inquire into the amount of the valuation notwithstanding that there had not been any notice of intention to withhold payment in respect of a particular matter under that valuation, it would be strange if a court could not also do so when the matter of the entitlement a of the claimant to the amount claimed was in issue. It was held that the failure to serve an effective notice did not have the result that the amount of the valuation is to be treated as the amount which is "due under the contract" within Section 111(1). While it was possible that Parliament may have intended that the paying party should not in any circumstances, apart possibly from fraud, be able to withhold payment of any sums claimed in a valuation or in an invoice unless a valid notice of intention to withhold payment had been given, that would be a surprising conclusion and there was nothing in Section111 which compelled that result. The use of the words "due under the contract" pointed to an intention that it was only from sums which would otherwise be due and payable that a retention or withholding could be made and that what Parliament had in mind was the type of situation where a liability to make payment had arisen but the paying party had a cross claim which if established would have the effect of entitling him to withhold the whole or part of the sum which he would otherwise have been obliged to pay. If it were correct that the effect of a failure to serve a valid notice of intention to withhold payment under Section111 was that the amount of the valuation or invoice was to be regarded as a sum "due under the contract", the consequence would appear to be that neither an adjudicator nor the court could properly refuse to order payment in full even though it might be perfectly clear for example that the work or the materials claimed for had not been carried out or supplied, or that the wrong rate or price had been claimed or that there had been some other error in the invoice or valuation.

Judge Gilliland agreed with HH.Judge Bowsher Q.C. that no distinction should be drawn between matters of abatement and matters of set-off and that a notice must be given under Section 111 if monies were to be withheld from sums which would be payable but for the set-off or abatement. The question was a matter of substance and not of legal form or technicality. It did not follow that merely because an abatement may technically reduce the amount due and payable under the contract that Parliament was to be taken to have intended that the amount claimed could not be challenged if no notice was given under Section 111. An abatement normally involved a breach of contract on the part of the contractor and was in the nature of a cross claim which operated to reduce the amount which could be recovered. It was developed by the common law as a procedural means whereby justice could be done as between the parties without the need for the defendant to bring a cross action. It was not in substance different from a set-off.

Accordingly it was held that Millers was entitled to summary judgment for the amount of principal claimed less the sums of £16,005.96 in respect of tax and £2,169.99 plus VAT in respect of the mouldings. No question arose of refusing summary judgment because any over payment which may have been made could not be recovered subsequently. There had been no adjudication on the validity of any right which Nobles might have had to recover an over payment and all that has been finally decided was that because no valid notice was given under Section111 Nobles was not entitled to retain or withhold sums in respect of any previous over payments.