| Date | 11 August 2004 |
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| Judgment | William Verry Limited v North West London Communal Mikvah, TCC 21 May 2004 |
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| The Issue | The effect of adjudicator's decisions on successive interim certificates for payment. |
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| Implication |
Each successive interim certificate for payment requires a fresh revaluation of the works taking into account previous over certification in respect of defective works. These matters may therefore form the basis of jurisdiction for successive adjudications. |
printThe procedural difficulties which can arise in obtaining a binding adjudicator's decision appear to be limitless. Another twist was revealed in the recent case of William Verry v North West London Communal Mikvah. Verry had been engaged under a JCT 98 standard form of building contract to construct a Mikvah, a Jewish ritual bath, in Golders Green, London. The contract sum was initially approximately £2.5 million. Disputes arose during construction and three adjudications were commenced between the parties. The first and second adjudications concerned disputes in connection with the amounts due under two interim payment applications prior to practical completion. In each case, the adjudicator had ordered further monies to be paid to Verry and the Mikvah had complied with those decisions. At practical completion however, a further dispute had arisen between the parties as to the extent of defective works. The architect engaged by the Mikvah had issued snagging lists and instructions to Verry to undertake remedial works, failing which it would instruct others to carry out the work at Verry's cost. Verry denied that it was in default in respect of any of the alleged defects. Soon after practical completion, and following the adjudicator's second decision, the architect issued a further interim payment certificate. Despite that the retention fund had been reduced from 5% to 2.5% of the certified amount, this certificate stated that no further monies were due to Verry. This had been achieved by making a deduction in respect of defects which, when factored into the new payment certificate releasing one half of the retention fund, resulted in a £nil amount satisfied as due for payment. The new certificate and the means by which it had been calculated was of course not to Verry's liking and one week later they served notice for a third adjudication. The adjudicator who had conducted the second adjudication was appointed to conduct the third. In its referral notice, Verry stated that the second adjudication decision was binding on the parties until revised in a subsequent arbitration. A further interim certificate should have been issued following practical completion for payment of half the retention fund and the reduction of the gross value of the work in the latest interim certificate had deprived Verry of its contractual right to be paid that retention. The Mikvah responded that no further work had been carried out since the earlier payment certificate and that the latest certificate correctly revalued the work to take account of the defects identified in the architect's snagging lists, which Verry had failed to rectify. The adjudicator rejected the Mikvah's contentions and ordered that Verry should be paid a sum corresponding to the disputed retention of 2.5%. He concluded that it was not open to the architect to reduce the gross value of the work, since the value contained in his previous adjudication decision was binding upon the parties and could not be reduced until that dispute or difference had been resolved in a subsequent arbitration. He also noted that any reduction to amounts otherwise due to Verry could only be made from further sums due. The reduction could not be retrospectively applied to the amount decided in the previous adjudicator's decision. His Honour Judge Thornton QC concluded that the adjudicator was plainly wrong in this approach. The adjudicator's reasoning overlooked the contractual basis of an interim payment under the contract. This third adjudication was seeking a further valuation of the work taking into account and giving appropriate effect to the list of defects and snagging items insofar as the previous valuation had overvalued those work items. The adjudicator should have considered these defects and their alleged value as contended for by the Mikvah in the response documents submitted in the third adjudication. This meant that it was quite wrong for the adjudicator to assume that he could only consider defects where these could be applied against further sums becoming due after his second adjudication decision. Judge Thornton recognised the inconsistency of the approach of the adjudicator in any case in that, even if the adjudicator had been right on this point, the release of further retention did amount to further sums due, against which the defects ought properly to have been taken into account. Consequently, the adjudicator had wrongly failed to consider the value of alleged defects in the third adjudication. The difficult question however was whether that error was an error made within the jurisdiction of the adjudicator, or was an error in addressing a question that had not been referred rendering the decision unenforceable. On this point Judge Thornton concluded that the errors of the adjudicator were made as part of his answering the right question rather than in answering the wrong question. Accordingly, despite the fundamental nature of the adjudicator's error, Judge Thornton declared that the adjudicator's decision should be enforced. Recognising however that Mikvah might be entitled to commence a fourth adjudication to deal with the matter of defects and that that process might take approximately six weeks to reach a conclusion, Judge Thornton applied a novel but extremely practical approach to enforcement. He directed that the judgment for enforcement should not be drawn up for six weeks from the date of his decision. This would mean that effect could be given to any subsequent adjudication decision so that one decision could be set against the other and only a balancing figure paid to the net winner.
CJ-0432
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