Urang Commercial Ltd v Century Investments Ltd & Anor

There are two applications before the court for summary judgment to enforce two decisions of an adjudicator, Mr Mark Pontin. They are made in two separate actions. Each case has been brought by the same claimant, Urang Commercial Limited (“Urang"), a building contractor. The defendant in each case is the owner or operator of hotels who employed Urang to carry out building conversion works to a hotel under a JCT standard form of building contract that contained a provision for adjudication.

In each case Urang claimed that it was owed money by the relevant defendant and it referred the dispute to adjudication. Mr Pontin was the adjudicator in each case and in two separate decisions, each dated 30 July 2010, he awarded a sum of money to Urang and directed that the defendant should be responsible for his fees.

The defendant in the first action, Century Investments Ltd ("Century"), was ordered to pay Urang £47,663.37 (net of VAT) and was ordered to bear the adjudicator's fee of £4,241.75, but on the basis that the adjudicator's fees were to be settled by Urang and were then to be repaid to Urang by Century on demand. The adjudicator's fees have not been paid by either party.

The defendant in the second action, Eclipse Hotels (Luton) Ltd ("Eclipse"), was ordered to pay Urang £22,720.35 (net of VAT) and was also ordered to bear the adjudicator's fees of £3,795.25 on the same basis. Again, those fees have not been paid by either party.

Century and Eclipse are represented by the same solicitors and appeared on these applications by the same counsel, Mr Arfan Khan (who did not appear before the adjudicator). The defence in each case was on the same lines, namely that the adjudicator had failed to make a ruling on the respective respondent’s counterclaim in breach of natural justice and failed to take into account, also in breach of natural justice, the fact that the respondent had served a withholding notice.

Since the issues that are raised by each application are virtually the same, it is convenient to deal with the application for summary judgment against Century first.

Century owns a number of hotels including a hotel at Brickfield Lane, Harlington, Heathrow (“the Hotel”). By a JCT Standard Form of Building Contract 2005 Edition, dated 13 February 2008, Urang agreed to carry out building conversion works at the Hotel for Century. Article 7 and Clause 9.2 of the Contract provide for adjudication of a dispute arising under the Contract in accordance with the Scheme (Part I of the Schedule to the Scheme for Construction Contracts (England and Wales) Regulations 1998). Paragraph 23(2) of the Scheme provides that the decision of an adjudicator shall be binding on the parties until the dispute is finally determined.

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 that had been retained was £12,675. By the terms of the contract the final date for payment of the sum certified in the valuation was to be 14 days from the date of the certificate, in other words 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.

In relation to Valuation No 10 the withholding notice had to be served by 28 January 2009. Century did not do this. But a couple of weeks later, on 10 February 2009, the quantity surveyor notified Urang by e-mail that the client would be making certain adjustments to the balance due in the current valuation. It said that the amount of the payment would be £10,062.51. In fact, for reasons that are not explained, Century paid £17,445.66 against Interim Valuation No 10, leaving £4,091.34 outstanding.

The work commenced and much of it was carried out, but by early June 2010 the parties were in dispute about the payment of the sum that had been certified under Valuation No 10 but not paid, namely £4,091.34, and in relation to various other claims by Urang, including claims for an extension of time and associated prolongation costs, for payment of the retention and interest.

By a notice of adjudication dated 14 June 2010 the disputes were referred to adjudication. Century served a Response on 5 July 2010 and Urang served a Reply on 12 July 2010. It seems that no points were taken by Century either before or during the course of the adjudication in relation to the jurisdiction of the adjudicator and this fact was specifically referred to by the adjudicator in his decision. However, in Century’s Response it claimed 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 awarded Urang the following sums:

The award of these sums is challenged by Century on the following grounds:

In relation to the counterclaim, the adjudicator dealt with this under the heading "Other Issues" in the following terms:

Mr Khan submits that in approaching the question of the counterclaim in this way the adjudicator failed to deal with it. He submits that the counterclaim was properly put before the adjudicator and that he was accordingly obliged to consider it on the merits. His failure to do so, submits Mr Khan, was a breach of natural justice.

Mr Khan submitted also that Urang had failed to show that any sum was due under the contract and that this was a prerequisite to any recovery. He submitted that the facts alleged by way of counterclaim showed that the sum claimed was not, or at least arguably was not, a sum due under the contract.

Mr Samuel Townend, who appeared for Urang, accepted that in principle the counterclaim could be deployed as a defence to all the claims, save for the claim in respect of the balance due under Interim Valuation No 10. However, he submitted that the adjudicator did not fail to address the counterclaim but simply regarded it as a defence that was bound to fail in the absence of a withholding notice. If this was an error, then he submits that it was an error made by the adjudicator when addressing the right question, namely whether or not the counterclaim could be deployed as a defence to Urang's claims in the adjudication.

In relation to Mr Khan's second point, Mr Townend submitted that where a contract provided for interim valuations in which the sums certified as due had been assessed by an independent third party, the balance shown in the valuation was a “sum due” within the meaning of the contract.

It is now firmly established that an error of law or fact made by an adjudicator when deciding an issue referred to him is no defence to an application to enforce the award: see, for example, Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd [2000] BLR 522 (CA); Macob Civil Engineering Ltd v Morrison Construction Ltd [1999] BLR 93.

If, therefore, Mr Townend is right in his submission that, when deciding that he should not consider the counterclaim on its merits, the adjudicator was addressing an issue that was referred to him, albeit that he may have answered it in the wrong way, this affords Century no defence to the application for summary judgment.

Whether or not this submission is correct depends on an analysis of exactly what the adjudicator did. I will turn to that question later in this judgment.

In relation to the submission that Urang had failed to show that there was a sum due under the contract, Mr Khan relied on the decision of the Outer House of the Court of Session in S L Timber Systems Ltd v Carillion Construction Ltd [2002] SLT 997, where it was held that the Referring Party was not entitled to payment of the sums claimed in its valuations unless it had established a contractual entitlement to payment. It was held that the words "sum due under the contract" could not be equated with the words "sum claimed".

In my judgment, Mr Khan's reliance on this case is misplaced for the reasons that are very clearly set out in Coulson on Construction Adjudication, 2^nd edition, at paragraphs 9.06-9.12. In S L Timber there was no provision in the contract for payment under interim certificates in which the amount stated to be due had been assessed by an independent third party. The interim payment at issue between the parties was simply the subject of an application by a sub-contractor that had not been scrutinised by any third party.

In the case of Rupert Morgan Building Services (LLC) Ltd v Jervis [2004] 1 WLR 1867, the Court of Appeal drew a clear distinction between interim payments that have been certified, and were therefore due under the contract, and sums that had not been the subject of any third party scrutiny but were simply claimed as due by the contractor or sub-contractor in question.

The provisions relating to certificates and payments are in section 4 of the Contract. Clause 4.9 provides that the Contract Administrator shall from time to time issue certificates stating the amount due to the contractor from the employer, specifying to what the amount relates and the basis on which it was calculated. Clause 4.13.4 provides that, not later than 5 days before the final date for payment, the employer may give a written notice to the contractor which shall specify any amount proposed to be withheld from the amount due.

The effect of these provisions, in my judgment, is that the amount stated in the certificate as due is 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. He 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 may be, and I do not have to decide the point, 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, that the contractor may not be able to rely on it, without more, as establishing the sum due. However, since that is not the position in this case I need say no more about it.

Accordingly, I consider that 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 can be no defence to a claim for that sum (or any unpaid balance of it).

It is clear from the terms of the contract that I have already summarised, that the need to issue a withholding notice applies only to sums stated as due in interim valuations. There is 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 is 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.

Accordingly, I consider that the adjudicator was 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) in the absence of a withholding notice.

I have already set out in paragraphs 49 and 50 of the adjudicator's Decision in which he concluded that in the absence of a withholding notice he was "unable to assess the value" of Century's counterclaim.

Mr Khan submits that in adopting this approach the adjudicator wrongly failed to deal with an issue that was before him, namely to consider the counterclaim. In my judgment, this is not a correct submission. The question for the adjudicator was whether, and if so to what extent, Century's counterclaim could be deployed as a defence to Urang's claims in the adjudication. If the adjudicator concluded, as he did, that the counterclaim could not be deployed as a defence to the claims in the absence of a valid withholding notice, then he answered the question. The fact that he answered it wrongly affords Century no defence.

As I suggested to Mr Khan in argument, the position is similar to that where a party raises a limitation defence. If an adjudicator were to conclude that a claim or counterclaim was statute barred, he would not be obliged to go on and consider it on its merits. If statute barred it could not be deployed as a claim or a defence to a claim whatever its merits.

Mr Khan submitted also that in failing to consider the counterclaim as a defence to the Claimants’ claims, the adjudicator failed to exercise his jurisdiction which was an error of law rendering the adjudicators judgment a nullity. In this context, he referred me to the case of Ballast Plc v The Burrell Company Limited [2001] BLR 529.

This submission, which seems to me to put the same point in a different way, also fails because I do not read paragraphs 49 and 50 of the adjudicator's Decision as a ruling on jurisdiction; rather it is a conclusion that the attempt to deploy the counterclaim as a defence must fail in limine by reason of the absence of a withholding notice.

For these reasons, I consider that it is not open to Century to resist this application on the ground that the adjudicator failed to deal with Century's counterclaim.

Century's submission that the adjudicator was wrong to conclude that Century did not issue a withholding notice, or that by not considering the e-mail of 10 February 2009 he acted in breach of the principles of natural justice, is one that I regard as hopeless. Mr Khan was, quite rightly, unable to submit that the existence of the e-mail had been brought to the adjudicator's attention at any time prior to the issue of his Decision. In these circumstances, Century cannot be heard to say that the adjudicator acted unfairly by not considering a point that it had never raised.

In any event, even if it had been submitted that the e-mail of 10 February 2009 was a valid withholding notice, the submission would have been doomed to fail since the notice (if it would otherwise have been a valid notice) was issued well out of time.

In my judgment, for the reasons that I have given Urang is entitled to enforce the Decision in relation to the sum awarded of £47,663.37.

In relation to the fees of the adjudicator, I consider that Urang is not entitled to summary judgment unless and until it has itself discharged those fees and made a demand for repayment from Century.

However, Mr Khan very properly conceded that he could not object to my giving summary judgment in relation to the adjudicator's fees on the condition that it could not be enforced unless and until Urang had (a) paid the fees of £4,241.75 to the adjudicator and (b) made a demand on Century for reimbursement of those fees.

I therefore give summary judgment against Century for the sum awarded of £47,663.37, which I direct is to be paid within 14 days from the date when this judgment is handed down, and for the sum in respect of the adjudicator's fees of £4,241.75, but this not to be enforced until the requirements set out in the previous paragraph have been satisfied. Upon the appropriate demand being made on Century, the sum is to be paid within 14 days of receipt of the demand.

By a JCT Design and Build Form of Building Contract 2005 Edition dated 9 August 2007, Urang agreed to carry out building conversion works at a hotel in Luton for the Defendant (“Eclipse”). Article 7 and Clause 9.2 of the Contract provided for adjudication of a dispute arising under the Contract in accordance with the Scheme (Part I of the Schedule to The Scheme for Construction Contracts (England and Wales) Regulations 1998. The contract payment terms were varied by an addendum to the contract also dated 9 August 2007.

On 3 March 2009 the Quantity Surveyor under the contract issued Valuation/Payment Certificate No 10 on behalf of the employer in the sum of £15,971. On 17 March 2009 Urang issued its invoice for payment of that amount. It was not paid. No withholding notice was issued by Eclipse.

The work commenced and much of it was carried out, but by early June 2010 the parties were in dispute about the payment of the sum that had been certified under Certificate No 10 but not paid and in relation to various other claims by Urang, including claims for additional preliminaries, for payment of the retention and interest. The total sum claimed by Urang was £46,501.17.

By a notice of adjudication dated 14 June 2010 the disputes were referred to adjudication. Mr Pontin gave similar directions in that adjudication and so Eclipse, like Century, served a Response on 5 July 2010 and Urang served a Reply on 12 July 2010. Again, no points were taken by Eclipse either before or during the course of the adjudication in relation to the jurisdiction of the adjudicator, and this fact was specifically referred to by the adjudicator in his Decision. However, in Eclipse’s Response it claimed that it was entitled to £72,650 in respect of outstanding defects, repairs to damaged partitions and loss of revenue during repairs, together with liquidated and ascertained damages.

The adjudicator awarded Urang the following sums:

The award of these sums is challenged by Eclipse on the following grounds:

In relation to the counterclaim, the adjudicator again dealt with this under the heading "Other Issues" in the following terms:

Mr Khan made the same submission in relation to the adjudicator's approach to the question of the counterclaim. His failure to consider it on its merits was, Mr Khan submitted again, a breach of natural justice.

Although it was asserted on behalf of Eclipse in a witness statement served by its Managing Director, Mr Damji, that a withholding notice had been served by Eclipse, there was no mention of such a withholding notice in the Response served by Eclipse in the adjudication and there is no copy of any such withholding notice in the documents. Accordingly, upon the material before the court, Urang's submission that no withholding notice was served must be accepted. That disposes of any points based on the alleged service of a withholding notice.

I reject Mr Khan's submission about the adjudicator's approach to the counterclaim for precisely the same reasons as those given in relation to the application against Century. For all material purposes the facts of the two cases in this respect are identical.

In relation to the adjudicator's decision in relation to his own fees, which amounted to £3,795.25, I reach the same conclusion for the same reasons as that reached in the claim against Century.

I therefore give summary judgment against Eclipse for the sum awarded of £22,720.35, which I direct is to be paid within 14 days from the date when this judgment is handed down, and for the sum in respect of the adjudicator's fees of £3,795.25, but this is only to be enforced on the same terms as those in the claim against Century. Upon the appropriate demand being made on Eclipse, the sum is to be paid within 14 days of receipt of the demand.

I will hear the parties on any questions relating to interest and costs if these cannot be agreed.