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5 March 2015 | Comment | Article by Matthew Stevens

Pay less notices, episode 2: revenge of the pay less notice


In my last blog on pay less notices, I looked at Harding v Paice [2014] EWHC 3824 (TCC), in which the TCC held that a failure to serve a pay less notice could not, of itself, convert a sum that may not be “properly due” into one that is “properly due” for all time. Edwards J handed down his second judgment on pay less notices only a couple of weeks later in ISG Construction v Seevic College [2014] EWHC 4007 (TCC).

Facts

ISG (contractor) and Seevic College (employer) entered into a JCT Design and Build Contract, 2011 Edition (DB11), agreeing that ISG’s interim applications for payment would be monthly from 11 February 2013.

ISG’s interim application 13, in respect of the period ending 11 May 2014, was valued at £1,097,696. When Seevic did not pay or serve a pay less notice ISG referred the dispute to adjudication.

In a decision dated 5 September 2014, Mr Robert Juniper (the adjudicator) decided that ISG was entitled to the sum claimed, plus interest, on the ground that Seevic did not serve a payment or pay less notice.

Four days prior to Mr Junipers decision (1 September 2014), Seevic served its own notice of adjudication. Mr Juniper was also appointed in respect of this second adjudication, and was asked to value ISG’s works as at the date of interim application 13. Mr Juniper valued the works at £315,450 and awarded a repayment of £768, 525, assuming that Seevic had paid the sum awarded in the first adjudication.

As Seevic had not paid the amount awarded in the first adjudication, ISG issued enforcement proceedings. ISG sought a declaration that the adjudicator in the second adjudication lacked jurisdiction because the matters decided in the second adjudication were the same or substantially the same as those decided in the first. ISG also argued that the value of the works included in interim application 13 had been agreed because Seevic had not served any notices.

Decision

Edwards-Stuart J held that the lack of a pay less notice meant that Seevic had agreed to the value of works claimed. The adjudicator in the first adjudication had decided that the sum claimed by ISG was the sum due; therefore, he lacked jurisdiction in the second adjudication as he had essentially been asked to decide on the same dispute. Therefore, ISG’s summary judgment application (in respect of the first decision) and the declaratory relief application (relating to the second decision) were successful.

In summary, following this case, it appears that where an employer hasn’t issued a payment notice or a pay less notice in respect of a validly served interim application; and where the adjudicator awards that sum to the contractor; the employer must pay the figure claimed. The employer must move on (essentially in arrears) and ensure that the appropriate notices are served when the next payment becomes due under the contract.

Reconciling with the decision in Harding v Paice

It would seem, rather confusingly, that in the ISG case Edwards-Stuart J held that lack of a pay-less notice meant that the sum claimed was the sum due; yet in Harding v Paice he decided that lack of a pay-less notice could not convert a sum claimed into one that was properly due.

It is possible to distinguish the two decisions on the basis that in Harding, it was in respect of the final payment, whereas it was an interim payment in ISG. The consequences of denying the adjudicator jurisdiction in Harding would have been to deny the employer the right to challenge the contractors account for all time – thereby giving the contractor a significant windfall. As the decision was in respect of an interim payment in ISG, there is nothing to stop the employer from correcting the position at the next interim application or in the final certificate i.e. the sum is still not one which is properly due for all time.

Having said this, the right to reclaim overpayments through interim certificates is not contained within many standard forms of contract. Whilst an employer could potentially issue a negative certificate in respect of any subsequent interim application, it is arguable whether they would be able to claim back the sum overpaid. It may well be the case in the future that we begin to see contracts amended to enable repayments in interim valuations.

Pay Less Notices

This judgment should be welcomed in that the court has provided further guidance on the impact of failing to serve a pay less notice. This case also demonstrates that the new payment regime under the Construction Act 1996 (as amended) is being strictly enforced. However, such enforcement, together with the recent case of Savoye and Savoye Ltd v Spicers Ltd [2014] EWHC 4195 (TCC), may well contribute to a rise in professional negligence claims – particularly where the oversight of a consultant leads to a client paying a sum that is significantly more than the value of the works, and where that overpayment causes the client to become insolvent.

Author bio

Matthew has specialised exclusively in construction and engineering law since qualification and has considerable experience in dealing with contentious, non-contentious and professional negligence issues.

Disclaimer: The information on the Hugh James website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. If you would like to ensure the commentary reflects current legislation, case law or best practice, please contact the blog author.

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