Christmas has come early for one Contractor, albeit they may have to hand back some of their gifts……

In the case of ISG Construction Limited v Seevic College [2014] EWHC 4007 (TCC) (Contractor vs Employer), the Courts have made a very useful contribution to recent case law and at the same time given some much needed clarity to the issue of Pay Less Notices.

In this matter the court refused an action to enforce an adjudicator’s decision valuing an interim payment application. The reason for this refusal was that the adjudicator had already issued a separate decision for a sum owed by the Employer to the Contractor, in the same application for payment. The reason being that the Employer had failed to serve a payment notice or pay less notice in accordance with the provisions of the contract (JCT Design and Build Contract 2011).

Background to the case..

There were two adjudications, both of which related to the same application for payment by the Contractor (Number 13, in case you’re interested). In the first of these adjudications the Contractor had achieved success in claiming £1.1million from the Employer, because the Employer had failed to serve a payment notice or pay less notice, thereby disputing the sums and had refused to make payment of the notified sum, as stated in the Contractors application.

Here is where the twist comes in, so please do pay attention. Approximately 4 days before the adjudicator had issued their decision for the first adjudication, the Employer took the step of starting it’s own adjudication, this time the referral document asked the adjudicator to value the sum he considered to be due to the Contractor, in the same interim application.

The Employers reasoning was that in the first adjudication the adjudicator was not being asked to make a decision in respect of what the value of the interim application was. The adjudicator agreed with this logic and proceeded on with the second adjudication, at the end deciding that the Contractor should have been paid approximately £300k and not the £1.1million he had awarded in the first adjudication.

Following this second decision the Employer made payment of £300k by cheque to the Contractor. The Contractor promptly issued enforcement proceedings to recover the balance he believed he was due from the first adjudication (£800k). If that was not confusing enough, the Employer thereafter issued their own enforcement proceedings in respect of the second adjudication.

And so this brings us to the “Happy Ending”, well at least for some…

The Court agreed with the Contractor and decided that the adjudicator did not have jurisdiction to decide the second adjudication. This was because he had already decided that £1.1million was payable in the first adjudication and as an adjudicator can only decide once on the same dispute, the decision was null and void.

Interesting to note Mr. Justice Edwards-Stuart comments in relation to the second adjudication “It is clear that Seevic, aware that it had not served the relevant notices in time, was seeking to frustrate or reduce the impact of the likely decision in Adjudication No 1 in the hope that it could obtain a decision in Adjudication No 2 that the value of ISG’s works up to the date of the application was less than the amount claimed by ISG.”

Now while the adjudicator did find that the Contractor was not entitled to the full interim application in the second adjudication, the courts thankfully followed what I believe is the spirit of the act and held that the statutory payment provisions must be followed. Obviously the Employer will now have to decide whether or not to pursue the Contractor for the difference.

In Summary

The idea that cashflow is central to the success of the construction industry and therefore the economy led to the original 1996 Construction Act, which sadly failed in many respects to deliver its aims. The amendment by way of the 2009 Act was seen by many as a leap forward, although there has been very little in the way of case law to back it up, until now.

I don’t know about you but I am delighted with this decision and the clarity it provides. Since the original act was amended by Part 8 of LDEDC there has been the threat that this loophole allowed a party to recover its position by launching a second adjudication, in the event that they had ignored the statutory scheme. This has been effectively closed as a result of this decision.

So, here we have, at long last, validation of what many in the industry believed to be the thinking behind the new payment procedures in Part 8 of the Local Democracy, Economic Development and Construction Act 2009. Namely, pay now, fight later.

I hope now that this decision ensures that going forward Employers and Main Contractors will be under no illusion as to how important it is to issue the correct notices, on time, if they intend to pay less than the notified sum under a contract.

I thank you for taking the time to read this article and I hope you found it useful. Please feel free to connect with me, like, comment or share this article.

Wishing you the very best wishes for the forthcoming festive season.

PS as an extra Christmas treat, comment on LinkedIn or email me via Contact Us, with your email address and I will email you a White Paper I have written on the new Construction Act and what you need to know. 

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