The very first thing an Adjudicator expects when appointed to decide a construction dispute is that lawyers will make challenges to their jurisdiction. In doing so lawyers seek to restrict the issues which contractors wish the Adjudicator to consider in deciding whether they should be paid outstanding monies owed to them by their client. These jurisdictional questions can be a hard fought issues running parallel with the Adjudicator’s main purpose of deciding whether a contractor should be paid the sums claimed. The job of the contractor’s lawyer is to prevent these jurisdictional challenges from obscuring the object of Adjudication, which is to act as a fast track summary process aimed at addressing the contractor’s problems of cash flow when a client refuses to pay them.
A recent example of the way the courts treat jurisdictional challenges is the case of Witney Town Council -v- Beam Construction (Cheltenham) Limited [2011] EWHC 2332 (TCC) (12 September 2011 where Mr Justice Akenhead in the Technology and Construction Court deliberated on the question of when the contractor will and will not be wrongly bringing more than one dispute in an adjudication, on when will there be more than one dispute and on what is the meaning of more than one dispute. Lawyers for the client might argue that the Notice of Intention to Refer to Adjudication presented by the Contractor’s lawyer wrongly contains more than one dispute and for this reason should not be allowed to proceed. The court also ruled on how the adjudicator should approach such legal arguments put to him by the respective lawyers involved. The court decided that:-
“ (i) A dispute arises generally when and in circumstances in which a claim or assertion is made by one party and expressly or implicitly challenged or not accepted
(ii) A dispute in existence at any one time can in time metamorphose in to something different to that which it was originally
(iii) A dispute can comprise a single issue or any number of issues within it. However, a dispute between parties does not necessarily comprise everything which is in dispute between them at the time one institutes jurisdiction, put another way, everything in issue at that time does not necessarily comprise one dispute, although it may do.
(iv) What a dispute in any given case is will be a question of fact albeit that the facts may require to be interpreted. Courts should not adopt an overly legalistic analysis of what the dispute between the parties is, bearing in mind that almost every construction contract is a commercial transaction and parties cannot broadly have contemplated that every issue between the parties would necessarily have to attract a separate reference to adjudication.
(v) The Notice of Adjudication and the Referral Notice are not necessarily determinative of what the true dispute is or as to whether there is more than one dispute. One looks at them but also at the background facts.
(vi) Where on a proper analysis, there are two separate and distinct disputes, only one can be referred to one adjudicator unless the parties agree otherwise. An adjudicator who has two disputes referred to him or her does not have the jurisdiction to deal with the two disputes.
(vii) Whether there are one or more disputes again involves a consideration of fact. It may well be that, if there is a clear link between two or more arguably separate claims or assertions, that may well point to there being one dispute. A useful if not invariably rule of thumb is that, if disputed claim No 1 cannot be decided without deciding all or part of disputed claim No 2, that establishes such a clear link and points to there being only one dispute.”
The Adjudicator should adopt these principles and decide that there is a single dispute if the Referring Party has identified outstanding monies that have remained unpaid for a considerable period of time without and in the absence of withholding notices having been issued and after an account for payment has been made following the proper termination of the contract by the Referring Party.
In carrying out this exercise the adjudicator should not “....adopt an overly legalistic analysis of what the dispute between the parties is, bearing in mind that almost every construction contract is a commercial transaction and parties cannot broadly have contemplated that every issue between the parties would necessarily have to attract a separate reference to adjudication....”
The leading case on withholding notices (now payless notices) is Rupert Morgan -v- Building Services (LLC) -v- Jervis [2004] B.L.R 18 and thisdecidedthat where the sum claimed is indisputably due under the contract it must be paid to the Referring Party forthwith in accordance with the principles under Section 111A of the Housing Grants and Regeneration Act 1996 (as amended). In so far as the Responding Party seeks to set off against the amounts claimed by reason of alleged defective work or for any other reason they will be prevented from doing so because if there is a failure by them to issue withholding notices.
Furthermore, the decision of ALE Heavy Lift -v- MSD (Darlington) Limited [2006] EWHC 2080 in support of the conclusion that upon the issue of a certificate and invoice for payment under the contract in the absence of a valid withholding notice the sums certified and invoiced must be paid notwithstanding any claims for set off that the Responding Party may have.
Even if the Responding Party alleges that the interim certificates were issued in error because the works were not satisfactory carried out or were wrongly issued for some other reason, which the Referring Party will deny, the Court of Appeal in Lubenham Fidelities & Investments Co Limited -v- South Pembrokeshire DC [2004] B.L.R. 33 decided that where a building contract states that an employer should pay a contractor on the basis of a Supervising Officer’s certificate the employer is bound to do so even if the certificate is found to have been issued in error.
If the Responding Party intervenes and seeks to prevent the Supervising Officer from issuing a final or further certificate the Referring Party can rely upon the decision of Croudace Limited -v- The Mayor and Burgesses of the Lambeth [1984] WL 281899 which decidedthat payment is recoverable under the contract in the absence of a certificate where the employer is responsible for the certificate not being issued.
If the employer impedes the issue of the final certificate by suspending the works on spurious grounds and as a consequence impedes the issue of the final certificate despite the recommendations of the Supervising Officer that should the contractor be paid in full the contractor could in those circumstances rely on the authority of Roberts -v- The Bury Improvements Commissioners [1870] L.R. 5 C.P. 310 in upholding the principle that if the employer prevents the supervising officer giving a certificate the employer cannot rely on its absence “for it a principle well established at common law, that no person can take advantage of the non-fufilment of a condition the performance of which has been hindered by himself.....” ( p.326)
The Notice of Intention to Refer to Adjudication sets the boundaries of the dispute as envisaged by the decision of Pilon Limited -v- Breyer Group Plc [2010] EWHC (TCC) in which the adjudicator decided that his jurisdiction was limited to the notice of adjudication and the referral and therefore excluded the responding party’s set off defence.
Where there is failure to issue withholding notices against the certificates, valuations and invoices the Letchworth Roofing Company -v- Sterling Building Company [2009] EWHC 1119 in Coulson J decided that the failure to issue withholding notice is fatal to any set off and/or counterclaim that a Responding Party seeks to make. There was nothing in the notice of adjudication or referral notice in the Letchworth dispute that suggested that the referring party was referring the responding party’s cross claim to adjudication.
The recent authority of Urang Commercial Limited -v- Century Investments Limited and ors [2011] EWHC 1561 does not overrule these decisions of the courts and does not remove the principle that withholding notices ( now payless notices) must be issued before a party can raise claims for set off and counterclaim in construction contracts, that adopt the statutory framework providing for notices of payment and withholding notices. In so far as this decision does not require withholding notices to be issued where interim valuations have not been issued, it will have no relevance where interim valuations have been issued. The Urang case is no obstacle to an Adjudicator concluding that the absence of withholding notices are fatal to any set off and/or counterclaim being made in an Adjudication and indeed he must so decide to avoid acting outside of his jurisdiction.
Anthony Philpott
11 August 2016
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