If an adjudicator awards a builder a given sum for work that is subsequently shown to be defective, is the client within its rights to knock off a certain amount to compensate?

Case Number 37 in our Adjudication series is Whiteways Contractors (Sussex) Ltd vs Impresa Castelli Construction Ltd. Here the adjudicator decided on 26 April that Impresa Castelli owed £95 383.50 to Whiteways Contractors for plastering at Kingsway Hall Hotel, London. Two weeks after the adjudication, Impresa said that it had overpaid an earlier interim. Seemingly, it discovered that some bulkheads were not done, and the mark-up on other items was excessive. So, it refused to pay any of the £95 383.50.

Whiteways marched Impresa into court. I think that the counsel’s argument for Impresa was that there was no bar in the Construction Act to retaining money from an adjudicator’s decision if it is subsequently discovered that work is defective, or not earned and therefore not due.

This is an interesting point. Let’s try to figure out what’s going on.

If you are my builder, it is open to you to call for the referee if you think I have underpaid you. On the other hand, I might have three types of reason for not paying. First, I might have a contra claim (some call this a set-off), for, say, late completion. Second, I might have a complaint about the quality of work, which would mean that I think you haven’t earned all you’re claiming (some call this “abatement”). Third, you might have embellished or titivated your account, which is another type of “not due” amount; some people call this a simple error, others call it something worse.

Contras need a special advance withholding notice, called an S111 or an “amber notice”. But abatements, or other sums simply not due, do not ordinarily need any special advance warning before being lopped off your interim or final account claim. If that is so, it is open to me to bring this into the adjudication and ask the adjudicator to embark on a valuation of amounts due. But if an abatement is discovered after an adjudicator’s decision says pay £95k, can that abatement be lopped off? His Honour Judge Bowsher says it has to be raised in the adjudication.

The judgment, I think, helps us to understand the correct approach to valuing interim or final accounts. Begin with the notice of intention to adjudicate. Say it complains about unpaid interim No 10. The builder explains that he reckons £250k gross is due. The employer replies that only £200k is due for one of the reasons given above. The adjudicator will then value the amount due: he or she will look at the efficacy of an amber notice or the real or imagined claims and the real or imagined defects.

If an abatement is discovered after an adjudicator’s decision, can it be lopped off? His Honour Judge Bowsher says no

So, like a good QS, the adjudicator will publish the gross amount properly due, the good “contras” to come off and finally the amounts previously paid. The decision or award will say what is to be paid for that interim.

The adjudicator had no jurisdiction to investigate the rights or wrongs of any earlier interims because the notice of intention to refer did not include those quarrels. In an adjudication I did, some time ago, I was referred to all 10 interims because the builder complained about underpayments on all of them. He was right, according to my calculations, and I awarded him statutory interest on the earlier underpayments. But I couldn’t have done that if the notice of intention to refer only asked me to look at interim No 10. Do you follow?

In Whiteways, the notice of intention confined the adjudicator’s attention to interims 22, 23 and the final account. It was open to Impresa to point out the non-installation of bulkheads and argue that the gross due was much less. But it didn’t do that until it was too late.

There is another point, which I will finish with, but please do not interpret this judgment to mean that an amber notice is required for abatements as well as contras or set-offs. It says nothing of the sort. Abatements are not withholding; they are amounts not falling due in the first place.

The final point was all about Impresa disputing the adjudicator’s jurisdiction. When Whiteways gave notice of intention to adjudicate, it described the issues. But when it served its case to the adjudicator (the referral folder) it was said to be wider in scope than the notice of intention. So, Impressa objected to the adjudicator and invited him to decide that “satellite” quarrel.

He did – but this meant that he decided the extent of his own jurisdiction, which isn’t permitted unless the parties widen his powers.So Impresa said his decision was not binding.