PCH engaged Tyroddy to provide labour and small tools for fix-only steel reinforcement at Wembley Stadium, and on two other contracts. The issues addressed referred to all 3 subcontracts. The subcontract between the parties was a letter from PCH to Tyroddy which set out the terms agreed. The retention was expressed to be 5% but was later reduced to 3%, as evidenced by the interim valuations. Tyroddy completed its works in 2006, following which the final interim valuation was issued by PCH. All the interim valuation certificates were expressed to be “on account”. Following completion, no final account process was undertaken. In January 2011, Tyroddy commenced adjudication for the unpaid retention.

In its Response, PCH argued: (1) no retention was due to Tyroddy until the final account had been determined; and (2) the interim payments already made by PCH were on account and, in fact, amounted to an overpayment. Therefore, no retention was due. Accordingly, PCH asked the Adjudicator to value the final account balance.

The Adjudicator decided that, as it was not within the dispute referred to him, he was not entitled to value the final account. He also decided that the retention was not conditional on formal agreement of the final account. Accordingly, he ordered PCH to pay the full amount of the retention to Tyroddy.

PCH commenced Part 8 proceedings seeking two declarations: (1) whether the Adjudicator’s decision was enforceable, on the grounds that the Adjudicator breached the rules of natural justice by not properly considering PCH’s defence; (2) whether, on a true construction of the contract, the parties were required to agree the final account prior to the retention becoming due, and whether PCH could raise the over valuation of Tyroddy’s works as a defence.

The Judge held that the Adjudicator had breached the rules of natural justice. The Adjudicator had not considered PCH’s evidence as to the value of the final account, which he should have done. The defence of over-valuation was one which PCH was entitled to employ, regardless of the fact that it had not been raised prior to the adjudication. Further, the Adjudicator had not actually asked the parties for submissions on this issue before making a decision, which was a further breach of natural justice. These were both material breaches.

With regard to the second declaration, the Judge decided that there was nothing in the subcontract, either express or implied, which made repayment of the retention conditional on a final accounting process being undertaken and completed.