Consequences of failing to give a payer’s notice of payment

ISG Construction Ltd v Seevic College.  Technology and Construction Court; (2014) Construction Industry Law Letter. TCC, Edwards-Stuart J

Facts

Seevic College contracted with ISG Construction Ltd under a JCT Design and Build 2011 Main Contract but the parties fell out.  ISG served an interim application for payment no. 13 for £1.1m.  Seevic failed to issue either a Payment Notice (to be done within 5 days of the Due Date) or a Pay Less Notice.  ISG went to adjudication and got a declaration that Seevic was bound by the Payee’s application as a Payee’s Notice, and therefore ordered to pay the £1.1m applied for.

Seevic issued a notice of adjudication against ISG, before the same adjudicator, asking for a valuation of the work covered by the relevant period.  In his second decision, the adjudicator now declared that ISG’s work was actually only worth £315,000.  He also ordered that ISG should pay back the balance.  When ISG refused, Seevic went to court.

Held

The second adjudication lacked jurisdiction, as the issue over the value of the work done covered by the Payee’s Notice had already been determined.

Comment

1. This apparently simple decision has serious consequences.  It has been argued that interim statements and interim certificates are literally “interim” and therefore a subsequent statement or certificate could amend a previous decision.  This would however be a very simple way of defeating the purpose of the Pay Less and Payment Notice reforms put through in 2009 changing and strengthening the payment provisions of the 1996 Construction Act.
2. On the other hand it is now clear that both the Payer and the Payee should be vigilant to make sure that the Payer’s Notices, Payee’s Notices, and Notices to Pay Less all go out at the right time.

N.B. The same judge (Edwards-Stuart J) came back to a similar predicament in Harding v Paice (2014) BLM, and [2014] EWHC 3824.  Mr Paice was a property developer and Mr Harding was a builder carrying out conversion works to two residential properties.  The works were complete but the parties disagreed on the final account.  Paice failed to issue a Payer’s Notice.  Harding had submitted a final account which was of course an application to be paid and this was regarded by the Act as a Payee’s Notice.

Paice missed his chance to put in a Notice to Pay Less and Harding went to adjudication for an Order that the Payee’s Notice stood.  Paice cross-adjudicated for a declaration as to the value of the works.  The Court was asked to rule on the legitimacy of these proceedings.

This time, Edwards-Stuart J took a different approach.  He said that Paice did have the right to ask the adjudicator to address the merits of the account and carry out a valuation, because otherwise the Employer would be permanently unable to recover a possible overpayment, because of the particular wording of the construction contract.

Edwards-Stuart J commented that: “The purpose of the (Statutory Scheme for Construction Contracts) is to enable contractors and sub-contractors in the construction industry to be paid quickly, not to provide a regime by which disputes about entitlement to payment could be resolved for all time simply by the absence of a noticed served in time or in a correct form.”

For more information, help or advice please contact Rob Langley on 0191 211 7975.