Urang Commercial Ltd v Century Investments Ltd & Eclipse Hotels (Luton) Ltd

[2011] EWHC 1561 (TCC)

Urang brought adjudication enforcement proceedings against both Century and Eclipse in relation to two separate adjudications.

The issue common to both claims was whether the adjudicator could consider counterclaims that had been brought by Century and Eclipse. The defendants argued 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.

For example, Century had sought payment of £20k for remedial work to soil drains, loss of revenue during repairs and liquidated and ascertained damages. The adjudicator’s view was that these claims were presented as a counterclaim and were properly the subject of a Withholding Notice. Absent such a Notice the adjudicator said he was unable to assess a value on these claims.

Urang said 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 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.

Mr Justice Edwards-Stuart noted that the provisions relating to certificates and payments were set out at section 4 of the JCT Standard Form of Building Contract 2005 Edition. Under this section the contract administrator was required to 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. Then, 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 the view of the Judge was 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.

This meant that the amount stated the Interim Valuation under dispute was a "sum due" under the contract and, 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).

However, under this contract, 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 is confined to the procedure in relation to interim valuations as required by sections 110 and 111 of the HGCRA.

Accordingly, Mr Justice Edwards-Stuart considered 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. Century submitted that in adopting this approach the adjudicator wrongly failed to deal with an issue that was before him, namely to consider the counterclaim. The Judge disagreed. 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 afforded Century no defence to enforcement of the decision.

The Judge said that the position here was 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.

Further the adjudicator’s decision was not a ruling on jurisdiction; rather it was a conclusion that the attempt to deploy the counterclaim as a defence must fail by reason of the absence of a withholding notice. Accordingly, Urang were entitled to enforce the two decisions.