Payment Notices and Successive Adjudications: Update

By Peter Sheridan, Partner, Sheridan Gold LLP

 As discussed in an earlier article, the sum due as an interim payment to a contractor is normally the sum that results from the employer’s payment notice and pay less notice, if any. But if the employer fails to issue either a valid payment notice or a valid pay less notice, the contractor is entitled to be paid the sum for which it applied. This situation arises as a matter of contract under the JCT Design and Build contract but also as a matter of statute (the Housing Grants, Construction and Regeneration Act 1996) under construction contracts generally.

If in addition to the position on notices, there is adjudication, the following issue may arise. A contractor succeeds in a first adjudication against an employer with the case that it is entitled to a sum for which it has applied for payment, in the absence of a valid payment notice and pay less notice from the employer. The result in the adjudication is thus decided simply on the procedural rules as to notices; the “true” valuation, in accordance with the contractual valuation rules, is not decided.

In ISG Construction Ltd v Seevic College (2014) and Galliford Try Building Ltd v Estura Ltd (2015), Edwards-Stuart J decided that, where the amount of interim payment is fixed by the contractor’s application, the employer having failed to issue a payment notice or pay less notice, the amount applied for is deemed also to be the correct valuation and is also deemed to be agreed. It is not permissible to have a second adjudication, on the “true” valuation. It is possible, the judge has indicated, to go straight to court for a declaration on the “true” valuation. If done speedily, the application for a declaration could be heard at the same time as an enforcement application in relation to the first adjudication. The declaration could then neutralise the effect of the first adjudication.

Another aspect of this type of case arose in another recent case decided by the same judge, Leeds City Council v Waco UK Ltd (2015). Again the contract was JCT Design and Build; again an adjudicator had found in favour of the contractor on the basis of the sum applied for being due in the absence of an employer’s payment or pay less notice. However, in this case the judge examined the issue of the validity of the contractor’s notice and found that it was issued prematurely, which was not permitted under the contract terms. The notice was invalid and the adjudicator’s decision could not stand.

It is, therefore, in all these cases, a legitimate defence for the paying party if the contractor’s notice was not in accordance with the contract. Some adjudicators have been inclined to take a lax approach to the validity of notices, treating anything intended to be or described as a notice as a valid notice. But the legal position is that this issue should be properly analysed in each case. Clearly the defence will work in court in an appropriate case.

Adjudicators may be more cautious after the most recent case on this topic, Caledonian Modular v Mar City Developments (2015). An adjudicator again found a large sum due on the basis of a contractor’s application and no notice in response. Again the court found the application to be invalid; not only was it premature but it did not appear on its face to be intended as an application and was not so described at the time. The judge was rather critical of the adjudicator for not considering these matters and his decision was not enforced. Although decisions are normally enforced, right or wrong, this was a rare case where the judge could decide the case finally at the enforcement hearing, as it involved such a narrow issue as to the validity of the notice and did not require any factual investigation.

An issue that may also have to be considered is whether, notwithstanding what the contract says, there has been a subsequent agreement altering it. On the employer’s side, this would normally need the express agreement of the employer, as consultants acting for employers do not normally have authority to agree changes to contract terms.

There may also, however, be subsequent conduct (which may involve the employer’s agent) which gives rise to a party being able to argue that a contractual requirement relating to notices has been waived or is the subject of an estoppel.

For more information, contact Peter Sheridan

Partner at Sheridan Gold LLP

T: 01737 735088

E: psheridan@sheridangold.co.uk

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