Shimizu Euope Ltd v LBJ Fabrications Ltd
Technology and Construction Court
Her Honour Judge Frances Kirkham
29 May 2003
The adjudicator decided that the contractor should pay the sub-contractor a specified sum plus VAT as appropriate “without set-off” not later than 28 days after the sub-contractor delivered a VAT invoice as required by the sub-contract conditions. The day after the decision the sub-contractor submitted a VAT invoice in the sum awarded to the contractor. The contractor refused to make any payment and instead gave notice of its intention to withhold payment in relation to any sum due following its receipt of the VAT invoice. It was common ground that the letter was capable of constituting an effective notice of intention to withhold payment for the purposes of section 111 of the Construction Act 1996.
Judge Kirkham held that the true construction of the decision was that he did not decide that the contractor did not have any future right of set-off, that the contractor’s remaining rights under the sub-contract and the Act had been removed or that the contractor was prevented from exercising any future rights. Therefore the contractor was entitled to serve a withholding notice under section 111 in relation to the sum awarded which the adjudicator decided would become due on the sub-contractor providing the contractor with the VAT invoice.
Judge Kirkham went on to make two findings as to the scope of the powers conferred on the adjudicator under the TeCSA Adjudication Rules 1999 (version 1.3). The first was that Rule 11(ii) probably confers on the adjudicator the jurisdiction to decide the basis of the parties’ contractual relationship (by providing that the adjudication could include any matters which the adjudicator considered should be determined for it to be “effective and meaningful.” The second was that Rule 28 did not prevent the contractor from seeking the declaratory relief it did seek (by providing that no party could apply to the court until the adjudicator had made his decision and it had been complied with).
If the nature of the decision is that a sum to be paid by the defendant will not become due until the claimant has carried out a particular action, the defendant is entitled to serve a potentially effective section 111 notice of intention to withhold payment in respect of that sum.