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Counterclaims and frolicking: does Urang change anything?

The recent case of Urang Commercial Ltd v Century Investments and another, has caused concern that it is difficult to reconcile with the existing authorities, particularly those where the adjudicator has taken too narrow a view of his jurisdiction.

In my view there is no conflict with this line of authority. The case instead shows that, no matter how summarily an adjudicator dismisses a counterclaim, his decision is still a decision.

What I find harder to understand is Century’s failure to disclose important evidence: the withholding notice it served in relation to Certificate No.10 appears only to have been put in evidence during the enforcement proceedings.

The facts

During the adjudication, Century had raised a counterclaim. The adjudicator’s response on this was brief to say the least:

“49. The response sought payment of £19,890 for remedial work to soil drains, loss of revenue during repairs and liquidated and ascertained damages.

50. Such matters were presented as a counterclaim and are properly the subject of a Withholding Notice. Absent such a Notice I am unable to assess a value therefor in this adjudication.”

In enforcement proceedings, Century raised three challenges to the adjudicator’s decision:

  • The adjudicator had failed to consider the counterclaim, and in so doing had acted contrary to the principles of natural justice.
  • The decision on the absence of a withholding notice was not a ruling on the merits of the counterclaim but an exclusion on jurisdictional grounds.
  • The adjudicator had failed to take account of the fact that Century had served a withholding notice.

Mr Justice Edwards-Stuart agreed with Century that the adjudicator had been wrong in law to dismiss the counterclaim for lack of a withholding notice. However he went on to reject each of Century’s natural justice arguments.

Deciding to dismiss the counterclaim: a decision?

The first two arguments follow the line of authorities that an adjudicator who takes too narrow a view of his jurisdiction and excludes a defence or counterclaim is acting in breach of natural justice.

However, the judge distinguished this case clearly from that line of authority. He did this by deciding that the adjudicator had not treated the counterclaim as being outside his jurisdiction but instead had considered and dismissed the counterclaim on its facts. Century’s second limb suggests that they were alive to this problem with their claim.

The adjudicator decided that the counterclaim failed for lack of a withholding notice and dismissed the counterclaim on that basis, without looking any further at the merits of the counterclaim. Apart from the small matter that his decision was wrong, there is nothing procedurally wrong with this approach – indeed given the low value of the claim, this efficient approach could be commended for saving the parties’ costs.

Frolicking with Charlotte Homes

Perhaps harder to reconcile with Urang is the case of Humes Buildings Contractors Ltd v Charlotte Homes (Surrey) Ltd (an unreported decision referred to in PC Harrington Contractors Ltd v Tyroddy Construction Ltd). Charlotte Homes was very similar to Urang in that the adjudicator had wrongly rejected a counterclaim on the basis of a missing withholding notice. However, in Charlotte Homes enforcement was refused. The ratio in that case seems to have centred on the fact that the adjudicator came to this conclusion without reference to the parties. This follows the line of challenges where the adjudicator has “gone off on a frolic of his own”.

The facts in Urang appear very similar. It seems that the withholding notice (in the Century adjudication) was not put in evidence before the adjudicator. This suggests that the point was not argued and that the basis of the adjudicator’s decision was not put to the parties. Surely, especially in light of Century’s third limb of challenge, if the adjudicator had invited submissions on the effect of a missing withholding notice Century would have put its withholding notice into evidence.

However, if the adjudicator did go off on a frolic of his own, why did the decision not fail on these grounds? This point was not argued at enforcement, suggesting that the facts ruled it out. Why? Who knows? It will remain a mystery. In practice there are probably a number of reasons why Century did not put its withholding notice into evidence. Most likely, it realised that its withholding notice was not valid – it was served out of time – and in any event only related to the balance of the sum certified in Certificate No. 10 – a very small amount in the region on £4,000.

Perhaps it had not served a withholding notice in relation to its counterclaim because it didn’t think it needed to.

Perhaps, the withholding notice was simply found too late (in my experience, a bundle of useful documents always lands on your desk just after you have served your final submission).

Does the case tell us anything?

Urang confirms that an adjudicator’s decision that dismisses a counterclaim on its facts is a very different matter from an adjudicator failing to address the counterclaim. This is an important point for adjudicators to understand when addressing counterclaims.

Having said that, this case has the potential to cause confusion in relation to the “frolic” chain of cases. This is largely because it is very difficult to tell from the judgment precisely what was submitted to, and argued before, the adjudicator. As a result, it is impossible to assess whether or not the adjudicator went off on a frolic of his own in terms of his decision on the “missing” withholding notice. On balance, given the fact that the “frolic” argument was not raised on enforcement, I suspect that submissions on the withholding notice arguments were made by the parties during the adjudication and this case can be distinguished from Charlotte Homes on that basis.

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