Hart t/a D W Hart & Son v Smith & Smith  EWHC 2223 TCC
The Smiths engaged Hart to convert three barns into four houses under a JCT Standard Building Contract 2005 without Quantities. In November 2008, Hart issued application 21, of which the Smiths paid all but £9.5k, and in March 2009 Hart issued application 24 for £70k, of which the Smiths paid none. The Smiths issued a withholding notice after the relevant date set by the contract but did not specify to which of the applications the notice referred. On 26 May 2009, the contract administrator issued certificate 25 ordering a repayment of £7.5k by Hart to the Smiths. Three days later the Smiths issued a further notice of withholding for £138k referring to LADs, damage to a collapsed wall, refinancing charges and legal costs.
On 20 May 2009, Hart started an adjudication in respect of applications 21 and 24. On 16 June, the Smiths commenced an adjudication seeking repayment of certificate 25, payment of the £138k and a declaration that they were entitled to a certificate of non-completion in respect of each barn. Hart were awarded the full amount claimed. The Smiths were awarded the amount of certificate 25 and a payment of £4k for the collapsed wall. The adjudicator also made a declaration that the Smiths were entitled to certificates of non-completion in respect of all three barns, but did not allow the claims for LADs, refinancing charges or legal costs. Until the certificates of non-completion were issued, and therefore any delays were confirmed, Hart could not be required to pay LADs or the refinancing charges. The contract administrator then issued certificates of non-completion stating that the deduction of LADs was at the Smiths’ discretion. The Smiths duly wrote to Hart claiming £71k in LADs but in doing so differentiated between this claim and the amounts awarded in the second adjudication.
Hart then commenced enforcement proceedings and offered to set-off the specific sums awarded against Hart in the second adjudication of £11k. However the Smiths contended that they were entitled to set-off their claim for LADs against the decision in the first adjudication, which they submitted was a natural consequence of:
- The declaration made by the adjudicator that they were entitled to non-completion certificates;
- The issuance of non-completion certificates by the contract administrator; and
- The notification of the claim for LADs made by the Smiths to Hart.
HHJ Toulmin CMG QC decided that there were two key questions:
- Did the specific sum of £71k follow logically from the decision of the adjudicator in the second adjudication? and
- Can that sum be set-off against the adjudicator’s award in the first adjudication?
In relation to the first question the Judge decided that the sum claimed did not follow logically from the adjudicator’s decision and consequently could not be set-off. The only issue that did logically flow was the issue of the non-completion certificates. The Judge also thought it relevant that the sum now claimed for LADs was different to the amount claimed for LADs in the second adjudication. Accordingly, the decision in the first adjudication was enforced, subject to the deduction of the specific sum awarded in the second adjudication.