Interim Payment and Successive Adjudications: Update

As previously discussed, 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 applies.

In ISG Construction Ltd v Seevic College (2014) and Galliford Try Building Ltd v Estura Ltd (2015), Edwards-Stuart J, in the Technology and Construction Court (TCC), decided that, where an adjudicator decides that 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, it is not permissible to have a second adjudication, on the correct valuation in accordance with the contractual rules for valuation, in respect of the interim payment decided in the first adjudication.

This issue has now been considered by another, recently appointed, TCC judge, O’Farrell J, in Kersfield Developments (Bridge Road) Ltd v Bray and Slaughter Ltd (2017). She too found that it is not permissible to have a second adjudication on the correct valuation, because if the employer has not served a valid payment notice or pay less notice, there is no dispute about the sum due; it is the sum the contractor applied for. That sum must be paid and there is no contractual provision for it to be repaid.

The judge accepted that s.108 of the Housing Grants, Construction and Regeneration Act 1996 entitles the parties to refer any dispute to adjudication at any time and that this would include a dispute regarding the proper valuation of the works. However, the judge found that where a particular interim payment has been fixed by the default notice mechanism under the contract (here the JCT Design and Build Contract (2011 edition)), there is no contractual basis on which to revise the payment by reference to a proper valuation of the works and therefore there is no relevant dispute that can be referred to adjudication.

I question this analysis. Suppose the following situation arises. The contractor contends that the correct valuation is £x and applies for payment of that sum. The employer contends that the correct valuation is £y, but fails to serve a valid payment notice or pay less notice. The contractor is entitled to interim payment of £x. At the same time, though, there is a dispute as to the proper valuation.

I find the explanation offered as to why this dispute may not go to adjudication unconvincing. Even if one accepts there is no contractual basis on which to revise the payment, it is a non-sequitur that there is no dispute; there is still a dispute because one party contends for £x and the other for £y; and the parties have a right to refer any dispute to adjudication. Further, might there not be a contractual basis for revision, in the form of an implied term that once the correct amount is known, the payment is to be adjusted to that amount, or a repayment is to be made to adjust the payment to that amount?

By Peter Sheridan, Partner, Sheridan Gold LLP

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