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Adjudicator can consider counterclaim without withholding notice having been issued..

22 Jun 11 A court has held that an adjudicator was wrong not to consider a party's counterclaim because it had not issued a withholding notice against an interim certificate. However, he would only be able to consider counterclaims which did not relate to the interim certificate.

Urang applied to enforce two adjudicator’s decisions made against the defendants, for whom Urang had undertaken conversion works under a JCT 2005 building contract. In the first action, the adjudicator had ordered Century Investments Ltd to pay Urang £47,663.37 and his fees. In the second, he had awarded Urang £22,720.35 against Eclipse. The issues against Century and Eclipse were identical.

Century engaged Urang to undertake conversion works at the Harlington Heathrow. On 19 January 2009 the quantity surveyor under the contract issued Interim Valuation No 10 on behalf of the employer in the sum of £21,537. The valuation showed that the retention was £12,675. The final date for payment of these sums was 14 days from the date of the certificate i.e. 3 February 2009. . Clause 4.13.4 of the Contract provided that the employer may give a written notice to the contractor not later than 5 days before the final date for payment specifying any amount that it proposed to withhold or deduct from the amount due. The withholding notice should, therefore, have been issued by 28 January 2009, but Century issued no such notice.

On 10 February 2009, however, the quantity surveyor sent Urang an e-mail notifying it that Century would be making certain adjustments to the balance due in the current valuation. Without giving any reasons, Century paid only £17,445.66 against Interim Valuation No 10, leaving £4,091.34 outstanding. Much of the work had been completed by June 2010, but the parties were in dispute about this outstanding amount and Urang’s claims for an extension of time and prolongation costs.

Urang referred the dispute to adjudication. In its Response, Century alleged that it was entitled to £19,890 in respect of remedial work to soil drainage, loss of revenue during repairs and liquidated and ascertained damages. It asserted also that there were other defects in the works although no further sums were claimed in respect of them. The adjudicator made an award in Urang’s favour.

Century challenged the adjudicator’s award on three grounds:

The adjudicator had failed to take into account an important part of the dispute referred to him, i.e. that Urang was not entitled to the sums claimed given the existence of its counterclaim. Accordingly, Century argued that the adjudicator had acted contrary to the principles of natural justice;

The adjudicator’s ruling on the absence of a withholding notice was not a ruling on the merits of the counterclaim, but an erroneous and unfair ruling that the counterclaim did not fall within the adjudicator’s remit because of the absence of a withholding notice;

Alternatively, the adjudicator had failed to take into account the fact that Century had served a material withholding notice and acted contrary to the principles of natural justice.

Century said that the counterclaim had been properly put before the adjudicator and his failure to deal with it had been a breach of natural justice.

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THE WITHHOLDING NOTICE

In the judge’s view, the effect of clause 4.9 of the contract, the JCT 2005 Standard Building Contract, was that the amount stated in the certificate as due was a “sum due” under the contract and the employer must pay that sum on the date specified unless he has issued an appropriate withholding notice in time. In these circumstances, the contractor need do no more than prove the existence of a properly issued certificate. The contractor does not have to prove that the valuation in the certificate is correct, or that there are no other potential cross claims by the employer, such as, for example, a claim for defects. It might be that, if the certificate discloses an error on its face, or if it is shown that there is some other irregularity in relation to its issue, the contractor may not be able to rely on it without more, as establishing the sum due. This was not the situation in the present case.

The amount stated in Interim Valuation No 10 was a “sum due” under the contract and that, since Century did not issue a valid withholding notice in time, there could be no defence to a claim for that sum, or any unpaid balance of it.

From the terms of the contract, it was clear that the need to issue a withholding notice applied only to sums stated as due in interim valuations. There was no requirement to serve a withholding notice in relation to other claims made by a contractor, whether under a different provision in the contract or for damages. The requirement for a withholding notice was confined to the procedure in relation to interim valuations as required by sections 110 and 111 of the Housing Grants, Construction and Regeneration Act 1996. Therefore, the adjudicator had been wrong to decide that Century could not deploy its counterclaim as a defence to Urang’s claims in the adjudication, apart from the claim under the certificate, given the absence of a withholding notice.

Century attempted to rely upon an e-mail of 10 February 2009 as constituting a withholding notice. However, this had not been brought to the adjudicator’s attention before his decision. He could not have acted unfairly in respect of a point which had not been raised. Even if he had been aware of the e-mail, it had been issued out of time.

Accordingly, Urang was granted summary judgment against Century.

Urang Commercial Ltd. v Century Investments Ltd. and Eclipse Hotels (Luton) Ltd., [2011] EWHC 1561 (TCC)

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