Construction News

Sun May 16 2021

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Another ‘smash and grab’ adjudication?

6 Mar 17 Mike Plews of Irwin Mitchell reports on Kersfield Developments (Bridge Road) Ltd v Bray and Slaughter [2017] EWHC 15 (TCC).

Payment disputes, or frequently non-payment disputes, still arrive at the doors of the courts. And the courts are being robust and consistent when deciding them.

Consistent with previous decisions relating to interim payment applications, the courts recently enforced an adjudicator’s decision, in which the adjudicator decided that the employer under a JCT Design & Build Contract 2011 had to pay the contractor, the full sum of the interim application when it was late issuing its pay less notice.  The pay less notice was held to be invalid.

In the amended JCT contract, the contractor agreed to carry out the refurbishment and conversion of a mansion house and stable block, and construction of detached houses, for the contract sum of £4,959,000.  The amended JCT contract made provisions for periodic interim payments. The contractor issued its 19th interim application for payment in the sum of £1,208,279.39.  The employer disagreed with the content but failed to serve a valid pay less notice in time. Unsurprisingly, the contractor commenced adjudication proceedings in respect of the unpaid sum.

The adjudicator found that it was entitled to payment in full in respect of the sums claimed. The employer was not happy with the adjudicator’s decision and applied to the court to have the matter determined by the court. This prompted the contractor to apply for summary judgement to enforce the adjudicator’s decision. Summary judgement can be given by the court on grounds that the claimant has no real prospect of succeeding or the defendant has no real prospect of successfully defending the claim. The scene was set.

The employer disputed the sum in the contractor’s payment application and deemed the supporting information deficient arguing that it failed to substantiate two of the component sums. The contractor argued that the employer’s pay less notice was not served in time. The court looked at when the notice was sent by email and what the amended JCT contract said about the service of notices. The amended JCT contract did allow for service by email and crucially, when such a notice would take effect.  The result was that although the notice was sent by email on the last day a pay less notice could be sent, the wording of the amended JCT contract provided that it was to be treated as not having been served on the contractor until the following working day. Not good news for the employer!  It is important to remember to check the provisions in the contract dealing with time and service.

The court when hearing the employer’s argument on the particularisation of the valuation point made a distinction between the validity of an application that must be issued in accordance with requirement of the contract, and the validity of claims within an application, that may or may not be sufficiently substantiated so as to entitle the contractor to the sums claimed.

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Although certain components of the payment application might have lacked substantiation, the court found that this did not render the whole of the application invalid.  Of particular note, the amended JCT contract stipulated that interim payment applications shall be accompanied by such further information as required in the employer’s requirement. However, the court found that the amended JCT contract did not expressly provide that such payment applications were invalid in the absence of such supporting information. Again, not good news for the employer.

As payment under construction contracts are subject to the Housing Grants (Construction & Regeneration) Act 1996 (as amended) in coming to its decision the court had to consider the statutory requirements alongside the provisions within the amended JCT contract as the contractual provisions must always be in alignment with the statutory requirements.

A further issue arising from the case was whether the employer was entitled to commence a further adjudication seeking a ‘proper’ valuation of the works to determine the sum due under the interim payment application.

The court found that where a particular interim payment had been fixed by the default notice mechanism, 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. So, having failed to serve its notice the employer could not refer determination of the ‘proper’ sum to be decided by another adjudicator.

This is another reminder of the strict requirement to ensure that payment notices are served on time and in accordance with the contract provisions. Any attempt by an employer to commence a further adjudication seeking a ‘proper’ valuation of the interim application is likely to fail in circumstances where a pay less notice has not been served.

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