PC Harrington Contractors Limited v Tyroddy Construction Limited [2011] EWHC 813 (TCC)

Judgment Date: 25 March 2011

(1) In this case, an Adjudicator was held to have committed a breach of the rules of natural justice because he failed to consider a viable defence to a claim for the repayment of retention monies in the mistaken belief that the issues raised by the defence were outside his jurisdiction. (2) The Adjudicator had also committed a breach of the rules of natural justice because he did not ask the parties for their views on the issue of his jurisdiction.

Technology and Construction Court, Akenhead J

Background

PC Harrington Contractors Limited (“Harrington”) were subcontractors of Multiplex Constructions (UK) Limited in relation to certain aspects of the Wembley Stadium project. Harrington approached Tyroddy Construction Limited (“Tyroddy”) to act as fix-only reinforcement sub-subcontractors. In a letter dated 6 June 2003, Harrington set out the contractual terms, including rates for the work required, stating that valuation of the work would be weekly and “subject to 5% retention for a period of six weeks from your Commencement Date and will then be twice monthly, subject to 5% retention”. There was no express term dealing with the release of retention. Following the commencement of the work, it was agreed that the retention would be reduced to 3%. Payment Certificates were issued by Harrington to Tyroddy. These stated that the valuations contained in them were “on account”. The last of these Payment Certificates was issued on 28 May 2006. In that certificate the retention was stated to be £66,628.50. Following completion of the work, no final accounting process was embarked on. After an interval of four and half years, Tyroddy commenced an adjudication to claim the outstanding retention.

Tyroddy asked the Adjudicator to decide that the retention should be repaid by reason of an implied term, and to determine the relevant final dates for payment and the sums that should be have been repaid on those dates. Tyroddy argued that normal trade custom of payment of half of the retention upon completion and the balance within 12 months thereafter should apply. Harrington responded that the amounts certified in the payment certificates were on account only and as no final account had been ascertained and agreed, Tyroddy’s entitlement to the retention had not been established and accordingly no retention had yet become due. Harrington went on to claim that the value of the work carried out by Tyroddy was overvalued and as a result a sum of over £200,000 was due to Harrington. Harrington asked the Adjudicator to decide the amount of the final account in order to establish the amount of retention due to Tyroddy and, if the amount of the final account was less than the amount paid to Tyroddy, that Tyroddy should pay Harrington the difference.

The Adjudicator found that the retention should be repaid to Tyroddy under the implied term argued for by Tyroddy. He considered Harrington’s points regarding the value of the work to be another dispute that was unsubstantiated and had not crystallised as a dispute and was therefore outside his jurisdiction. As a result, Harrington commenced Part 8 proceedings on 7 March 2011, seeking declarations that the Adjudicator had committed a material breach of natural justice in refusing to consider the final account and its ascertainment and that in consequence the Adjudicator’s decision was unenforceable. In addition, Harrington sought declarations as to the proper interpretation of the contract in regard to the timing of the release of retention and Harrington’s rights in regard to abatement and the set-off of cross-claims.

Similar issues arose on two other contracts between Harrington and Tyroddy which had been subject to similar decisions by the same Adjudicator, and the parties agreed to have the issues on the other two projects dealt with by looking only at the facts of Wembley dispute.

Issues

The Court was asked to address the following issues:

• As a matter of substantive law, or in light of what the contract means, whether Harrington was entitled to raise the true value of the final account as a defence by way of abatement, set-off or otherwise to defeat the claim for payment of the retention.
• Whether the Adjudicator committed a clear breach of natural justice in construing his jurisdiction so narrowly as to disregard Harrington’s defence that the release of the retention could not be divorced from the taking of the final account.

Decision

The Court held:

• The Adjudicator erred in deciding that the process of determining the final account was outside his jurisdiction. In so doing, he denied himself the opportunity to consider the merits of the exercise that Harrington had asked him to determine and had committed a breach of natural justice.
• In addition, he did not give either of the parties the opportunity to make submissions to him on this jurisdictional issue. This meant that he “unwittingly failed to follow the rule of natural justice... to give the parties the opportunity to be heard” on jurisdictional matters.
• These were material breaches of natural justice and therefore the decisions of the Adjudicator should not be enforced.
• There was no implied term, or term of the contract by way of construction, that the retention was only payable once the final account had been finalised. It was not necessary to imply any such term because retention money really represented a credit that was already due to Tyroddy in this case. The retention would broadly be payable following completion when Tyroddy wished to claim for it after completion; it would be payable by implication by Harrington within a reasonable time of completion by Tyroddy.
• As a matter of law, a party may raise the value of the works completed as a defence to a claim for the payment of retention monies. The terms of the contract between the parties in this case did not exclude Harrington doing so.

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