Failure to serve Pay Less Notice did not prevent final account being challenged for all time

In Paice & Anor v MJ Harding (t/a MJ Harding Contractors) [2015] the contractor argued that:

1. if an employer wishes to pay less than the sum stated in the contractor’s account under clause 8.12 of the building contract, which incorporated the JCT Intermediate Form 2011 edition, it must issue a “Pay Less Notice”.

2. So the employer could only set aside the adjudicator’s decision to award the sum stated in the contractor’s clause 8.12 account in subsequent litigation by showing that its Pay Less Notice was validly served in time.

3. So if the employer failed to to serve a valid Pay Less Notice in time, it would deprive the employer of the right to challenge the contractor’s account.

The High Court pointed out that this would apply for all time even if the contractor had seriously overvalued his account and that the contractor would thereby obtain a windfall that the employer could never recover.

That would subject interim certificates to a more draconian regime than that which applies to the Final Certificate.

In the case of Final Certificates, if the employer commences adjudication or litigation within 28 days of it being issued, it ceases to be conclusive in respect of the matters raised in the litigation or adjudication (clause 1.9).

The High Court said that what would be due under clause 8.12.5 would be the “… amount properly due in respect of the account”.

In this case the adjudicator had not determined what was “properly due”.

He had decided that, in the absence of a valid Pay Less Notice, the employer had to pay the amount stated in the contractor’s account within 28 days.

The Court of Appeal has now backed the High Court. They said the employer could challenge the valuation arrived at on the contractor’s final payment application by applying for a further adjudication even though they had failed to issue a proper payment or Pay Less Notice.

The court said the employer’s failure to serve a Pay Less Notice had limited consequences. These were mainly that the employer had to pay the total shown on the contractor’s account and dispute the figures later. The employer had paid that amount, as the previous adjudicator had ordered. The employer could now proceed to adjudication in order to ascertain the true value of the contractor’s claims and of the employer’s counter-claims. So the High Court Judge had got this right.

So whilst the employer must comply with the adjudicator’s decision in the meantime by paying the sum ordered, it remains open to the employer to initiate further adjudication or litigation to decide what sum is properly due in respect of the contractor’s account.

Clearly the employer will want to avoid this drain on cash flow by serving the Pay Less Notice in time, especially if there are doubts as to the continuing solvency of the contractor when it comes to refunding the over payment.

This case helps in respect of final account payments. Here, a failure to serve a payment or Pay Less Notice will not usually prevent an employer from later challenging the true value of the work through adjudication or court proceedings.

The Court of Appeal has left the position in regard to interim payments less clear.

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