| Date | 19 June 2002 |
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| Judgment | Watkin Jones & Son Limited -v- Lidl UK GmbH(2), TCC 27 December 2001 |
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| The Issue | The application of express terms dealing with the absence of payment notices. |
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| Implication |
Once an adjudication has taken place upon an interim valuation, that decision may not be re-opened in a second adjudication, even though the decision has been reached purely on the absence of notices rather than upon the merits of the valuation. |
printThe recent case of Watkin Jones & Son -v- Lidl UK has confirmed a point over which there may have been some uncertainty concerning the use of express contractual terms governing the absence of payment notices. It appears to be generally accepted that where a paying party fails to issue a Section 110 payment notice within five days of the due date of any payment, that will not stop the paying party from later arguing that the amounts claimed for payment do not properly represent the amounts due under the contract. Although there has been no ruling decision on this point from the Court of Appeal, a number of lower courts have followed this approach, including perhaps most clearly the Scottish decision in S L Timber Systems -v- Carillion Construction, where Lord MacFadyen said "every construction contract requires the giving of the payment notice contemplated in Section 110(2), but there the matter stops. There is no provision that failure to give a Section 110(2) notice has any effect on the right of the party who has failed to dispute the claims of the other party. A failure to give a Section 110(2) notice does not in any way, or to any extent, preclude dispute about the sum claimed". A matter which had not been fully considered in relation to this point was whether an express term of the contract might be used to fundamentally alter this position. An example is found in the JCT With Contractor's Design Form of Contract, where at clause 30.3.5 it states "where the employer does not give any written notice pursuant to clause . . . (clauses dealing with payment and withholding notices), the employer shall pay the contractor the amount stated in the application for interim payment". This matter was considered in the earlier case of VHE Construction -v- RBSTB Trust Company in January 2000. Here a first adjudicator had felt bound by clause 30.3.5 to order payment in the full amount of the contractor's application in the absence of any payment notice from the employer. The employer's response was to commence a second adjudication on the basis that it remained entitled separately to dispute the amounts which it had been ordered to pay. In that case, Judge Hicks held that both adjudications were valid and that the separate decisions of both adjudicators should be enforced. Similar circumstances arose in the present case of Watkin Jones -v- Lidl. Watkin Jones had entered into a JCT With Contractor's Design Form of Contract with Lidl for the construction of a new retail store in Bangor, Wales. The contract sum was for approximately £900,000, but by valuation number 11, Watkin Jones was making an application for payment of approximately £1.7 million. The first of the supporting documents to that interim application was headed "Draft Final Account". Lidl treated the application as a valuation for a final account. It therefore ignored the requirements of the contract for the employer to give notice under clause 30.3.3 indicating the amount which it proposed to pay. Neither did Lidl issue any withholding notice under clause 30.3.4. The consequence, from Watkin Jones perspective, was that clause 30.3.5 should bite. The employer should therefore pay the contractor the amount stated in its application for interim payment without further enquiry. Faced with a refusal to pay, Watkin Jones therefore passed the matter into the hands of an adjudicator. The adjudicator concluded that if Lidl had given notice under clause 30.3.3, then, subject to the contents of that notice, the adjudicator would have had the right to consider what was properly due. In the absence of such a notice however, the adjudicator ordered that the amount applied for should be paid. Shortly afterwards Lidl tried to retrieve the situation by issuing a second notice of adjudication in which it said "the dispute relates to the properly calculated sum which ought to have been applied for in Watkin Jones' application number 11". The adjudicator appointed by the RICS to deal with this matter quickly realised that this was no more than a trick to circumvent the provisions of clause 30.3.5 of the contract. He concluded that there was no dispute capable of being adjudicated, since the matter had been fully considered in the earlier adjudication. Undaunted, a second attempt at the appointment of an adjudicator was made by Lidl. This time the adjudicator took the view that he could act. The matter then came before His Honour Judge Humphrey Lloyd QC. Judge Lloyd took little time in resolving the confusion. In his view, the first adjudicator had been entirely correct in that, if a notice is not given under clause 30.3.3 or 30.3.4, then the amount applied for must be paid. Watkin Jones' entitlement under its application number 11 had thus been settled by the first adjudication. It was therefore not open to Lidl thereafter to go back and question the amount included in application number 11 under a second adjudication. The second adjudicator or, as it happened in this case, the third adjudicator, had no jurisdiction. The proper course of action for Lidl would have been to have sought a declaration from an adjudicator as to the true value of the final account. In conclusion, Watkin Jones was entitled to enforcement of the first adjudicator's decision for payment of its application number 11, together with a declaration that the second adjudication should be halted.
CJ-0224
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