Clarkslegal LLP - Solicitors in Reading and London

Legal Updates

Construction Adjudications - meaning of a "dispute" and absence of effective notice of withholding

08 February 2012 #Construction


Jurisdictional challenges are the order of the day in adjudications. 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, in what is after all a fast track summary process that is aimed at addressing the contractor’s problems of cash flow when an employer refuses to pay them.

Recent and old cases come into play in determining what the adjudicator can and cannot do when deciding jurisdictional challenges based on grounds of alleged absence of any dispute, so invoking consideration of what a dispute comprises.         

In the recent authority of Witney Town Council -v- Beam Construction (Cheltenham) Limited [2011] EWHC 2332 (TCC) (12 September 2011 Mr Justice Akenhead in the Technology and Construction Court) considered questions of:

  • When a contractor will and will not be wrongly bringing more than one dispute in an adjudication, 
  • When will there be more than one dispute,
  • What is the meaning of more than one dispute and
  • How an adjudicator should approach 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, 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 behind the dispute may require to be interpreted. Courts should not adopt an overly legalistic analysis of what is the dispute between the parties, 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 conclusive as to 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, 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 rule of thumb guide 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.”       

Absence of withholding notices

What if, as often happens, the Responding Party seeks to set off against the amounts claimed by reason of alleged defective work or for any other reason, but no proper withholding or pay less notice has been served?  To what extent can the contractor rely on the absence of such a notice to press their claim for payment in full? 

The leading cases on withholding notices are Rupert Morgan -v- Building Services (LLC) -v- Jervis [2004] B.L.R 18 and ALE Heavy Lift -v- MSD (Darlington) Limited [2006] EWHC 2080. These decided that where the sum claimed is indisputably due under the contract it must immediately be paid to the Referring Party in accordance with the principles under Section 111 of the Housing Grants and Regeneration Act 1996.

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, 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, then 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 contractor can rely upon the decision of Croudace Limited -v- The Mayor and Burgesses of the Lambeth [1984] WL 281899.  The Court decided that payment is recoverable under the contract in the absence of a certificate where the employer is responsible for the certificate not being issued.

Where there is failure to issue withholding notices against the relevant certificates, valuations and/or invoices, the Court in Letchworth Roofing Company -v- Sterling Building Company [2009] EWHC 1119 decided that the failure to issue withholding notice is fatal to any set off that a Responding Party seeks to rely on in defence to an adjudication claim. There was nothing in the notice of adjudication or referral notice in the Letchworth dispute that suggested that the referring party consented to the responding party’s cross claim being dealt with in that same 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 must be issued before a party can raise claims for set off and counterclaim in construction contracts. 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.

Clarkslegal, specialist Construction lawyers in London, Reading and throughout the Thames Valley.
For further information about this or any other Construction matter please contact Clarkslegal's construction team by email at constructionsector@clarkslegal.com by telephone 020 7539 8000 (London office), 0118 958 5321 (Reading office) or by completing the form on this page.

Read more articles

David Rintoul

David Rintoul
Partner

E: drintoul@clarkslegal.com
T: 0118 960 4675
M: 07880 741 514

Contact

Construction team
+44 (0)118 958 5321