Dumarc Building Services Limited V Mr. Salvador Rico

Compliance with a contractual provision requiring a withholding notice to be served by an employer seeking to set-off liquidated damages against certified sums did not mean that such a notice was valid where the certified sum was the subject of an adjudication decision
 


DUMARC BUILDING SERVICES LTD v RICO


Epsom County Court
His Honour Judge Hull QC
31 January 2003
 

The employer served a withholding notice seeking to withhold sums for defective works, non-performance and liquidated damages in respect of an interim payment certificate. The contractor referred the resulting dispute to adjudication. The adjudicator found that there was overcertification and awarded a reduced sum to the contractor. The employer maintained that it was entitled to withhold sums due by way of liquidated damages. The contractor brought proceedings to enforce the award, which was met by a counterclaim for liquidated damages. The contractor applied for summary judgement.

 

Judge Hull held that the adjudicator had not determined whether or not the employer was entitled to deduct liquidated damages from the certified sum. The employer sought to show that the contract gave it the right to set of liquidated damages from “any monies” due under the contract. Clause 2.3 of the contract provided that an employer who sought to set off liquidated damages against sums certified in interim or final certificates should provide a withholding notice at least 5 days before the last day on which payment was due. The judge went on to state that clause 2.3 did not provide a party with a right to set off a claim for liquidated damages against an adjudication decision. To hold otherwise would drive a coach and horses through the Construction Act 1996 and through the detailed provisions the parties had agreed upon to resolve disputes by way of adjudication. The effect of the employer’s submissions would (wrongly) be to read into clause 2.3 the word “including sums owed under an adjudication”. The Court of Appeal’s decision in Levolux v Ferson had brought about a welcome simplification of the law. The philosophy behind the decision was readily understandable. This was that if the court allowed parties to set off sums against an adjudicator’s decision, adjudication would be prevented from being an effective remedy in terms of the interim resolution of construction contract disputes before their final resolution by court or arbitration proceedings.

 

Advice Note

The amount awarded by an adjudicator’s decision will not be subject to a set-off where the paying party only serves what would otherwise have been a valid notice of withholding after the decision has been made.