Shimizu Europe Ltd. v LBJ Fabrications Ltd.

An adjudicator’s decision valuing work and stating when payment will become due does not, without clear words, remove the paying party’s later statutory right to serve a withholding notice. Where payment is conditional on delivery of a VAT invoice, that right may arise after the adjudicator’s decision but before the final date for payment. An adjudicator also lacks jurisdiction to decide an issue which the parties have agreed is not in dispute. Adjudication rules preventing applications before compliance with a decision do not oust the court’s jurisdiction to construe the decision or determine jurisdictional objections.

Shimizu, the main contractor, appointed LBJ as subcontractor under a letter of intent concerning louvers and cladding works. An adjudicator valued LBJ’s work at £47,718.39 plus VAT and directed payment without set-off, subject to delivery of a VAT invoice. After the invoice was delivered, Shimizu served a withholding notice based on alleged defects and related losses.

Shimizu sought declarations concerning the construction and enforceability of the adjudicator’s decision, the withholding notice, the adjudicator’s jurisdiction, natural justice and the effect of the TeCSA rules. The central issues were whether the decision prevented a future withholding notice and whether the adjudicator had jurisdiction to determine the contractual basis of the parties’ relationship.

1. Withholding notice. The adjudicator had decided the amount which would become due under the contractual payment mechanism. Payment was not yet due because delivery of a VAT invoice was a condition precedent. The adjudicator’s reference to payment without set-off concerned the set-off and withholding matters identified in the adjudication, particularly Shimizu’s earlier notice. It did not determine any future withholding notice of which the adjudicator could not have known.
2. Shimizu therefore retained its contractual and statutory right under Housing Grants, Construction and Regeneration Act 1996, section 111, to serve a withholding notice within the prescribed period before the final date for payment. The decision operated within, rather than outside, the contractual and statutory payment machinery. Section 108(3) required the adjudicator’s decision to remain binding pending final determination, but did not prevent exercise of a statutory right arising before payment fell due.
3. The cases relied on by LBJ were materially different. In VHE Construction plc v RBSTB Trust Co Ltd, no withholding notice had been served before the final date for payment. Ferson Contractors Ltd v Levolux, The Construction Centre Group Ltd v Highland Council and Bovis Lend Lease Ltd v Triangle Development Ltd concerned circumstances where money had already become due. They did not govern the present case.
4. Jurisdiction. The parties had agreed in the adjudication that their contractual relationship was based on the letter of intent. The applicability of the cap was argued, but the contractual relationship itself was not in dispute. The adjudicator therefore exceeded his jurisdiction by deciding at paragraphs 6.2.2 and 6.2.3 of his decision that a concluded subcontract governed the valuation.
5. It was unnecessary to decide the alternative natural justice issue. The court nevertheless observed that, if the adjudicator intended to decide whether the letter of intent or a further contract governed the parties, he should have given them notice and an opportunity to make submissions on contract formation.
6. The TeCSA rules did not oust the court’s jurisdiction. They did not prevent the court from construing the adjudicator’s decision or granting declarations concerning jurisdiction and validity. The declarations sought by Shimizu were granted accordingly.

not stated in the judgment.