Construction: Failure to serve notices did not preclude further adjudication

In Kilker Projects Ltd v Purton (t/a Richwood Interiors) [2016] the High Court had to decide whether failure to serve a ‘payment notice’ or ‘pay less notice’ as required by the Housing Grants, Construction and Regeneration Act 1996 (as amended) (“the 1996 Act”), prevented the paying party from challenging the payee’s contractual entitlement to that payment meaning that the ‘notified sum’ in section 111 of the 1996 Act became “final and conclusive” as to the sum due under the contract.

The claimant submitted that the 1996 Act and the Scheme for Construction Contracts (England and Wales) Regulations 1998 (amendment) (England) Regulations 2011 regulated payment and cash flow. They did not decide the true substantive entitlement to payment under the contract and they did not conclusively determine entitlement to payment. A party who had failed to give the requisite payment and/or pay less notices must pay the amount stated in the payee’s payment notice by the final date for payment. However, having paid, that party was then entitled to seek a determination of any dispute about the valuation of the contractual entitlement of the contractor for the works, and it could do so in adjudication.

The defendant said the effect of a failure by a party to issue a payment notice and/or a pay less notice was that the payer agreed the payee’s valuation for that payment and must pay the application sum in full. In an application for final payment, a failure by a party to issue a payment notice and/or a pay less notice meant that the final account was agreed. It remained open to the payer to challenge the valuation in litigation or arbitration, for instance by proceedings for restitution, but the agreed valuation could not be re-opened in a subsequent adjudication.

The court agreed with the claimant:

“In Matthew Harding t/a MJ Harding Contractors v Paice [2015] the Court of Appeal determined that the employer could refer to adjudication the question of the true valuation of a final account following termination, despite an earlier adjudication ordering payment of the contractor’s application for final payment in full on the basis of a failure to serve a valid pay less notice. In upholding the decision of Mr Justice Edwards-Stuart at first instance, Jackson LJ, with whom the other judges agreed stated:

……. [78] In my view the employer’s failure to serve a Pay Less notice (as held by the previous adjudicator) had limited consequences. It meant that the employer had to pay the full amount shown on the contractor’s account and argue about the figures later. The employer duly paid that sum, as ordered by the previous adjudicator. The employer is now entitled to proceed to adjudication in order to determine the correct value of the contractor’s claims and the employer’s counter-claims.””

Therefore, the claimant had been entitled to refer the final account valuation to the adjudicator and was now entitled to have the amount awarded in that adjudication enforced.

This blog is posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.