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PAYMENT NOTICES – HAVE THE STONES BEEN CAST ASIDE?

PAYMENT NOTICES – HAVE THE STONES BEEN CAST ASIDE?
Payment under LDEDC Act 2009 – Is this still a game of sudden death?

Talk to the Chartered Institute of Arbitrators Thames Valley Branch
by
Robert A Sliwinski
FRICS FCIArb Barrister Chartered Arbitrator FRSA Adjudicator Mediator

THE POSITION A YEAR AGO

ISG Construction Ltd v Seevic College [2014] EWHC 4007 (TCC) (03 December 2014)
• Harding (t/a M J Harding Contractors) v Paice & Anor [2014] EWHC 3825 (TCC) (21 November 2014)
• Galliford Try Building Ltd v Estura Ltd [2015] EWHC 412 (TCC) (27 February 2015)

These cases started with a hard line on the payment notices causing a tremor through the industry.

ISG Construction Ltd v Seevic College
JCT Design & Build 2011.
ISG made Application for Payment No. 13.
There was no Payment Notice or Pay Less Notice.
The contract provided that in the absence of a Payment Notice the Application for Payment became the notified sum and therefore the amount due.
In Adjudication No.1 the Adjudicator found for ISG saying the application for payment became the default notice and this became the amount due. The Adjudicator had not valued the works.
Seevic commenced Adjudication No.2 to value the Works and obtain a repayment of the sum claimed in Adjudication No.1.
The Court enforced Adjudication No.1 but not Adjudication No.2 as the dispute had already been decided in Adjudication No.1.

Harding (t/a M J Harding Contractors) v Paice & Anor
Although decided before Seevic the case was not published until after Seevic had been heard by the same Judge.
JCT Intermediate Form of Contract 2011.
The Contract had been terminated.
Adjudication No.3 decided that the Sum Due was that applied for in the Termination Account due to a failure to issue a valid Pay Less Notice.
The Adjudicator highlighted that he had not valued the works.
Adjudication No.4 commenced by Paice on the basis of the value of the works.
Harding commenced injunctive proceedings to stop the Adjudication on the basis that the dispute had already been decided in Adjudication No.3. A temporary injunction was ordered.
The injunction was lifted after full argument in Court and Adjudication No.4 continued.
The judge considered the payment provisions and found that the wording of the termination clause 8.12.5 was different to the payment provisions prior to termination and that accordingly the “amount properly due” could be adjudicated. It was the fact that the termination provision did not follow the normal payment provisions which defined what the “amount due” was as opposed to the “amount properly due”.
Thus the judge found a material difference in the payment provisions that allowed him to say that where payment was under the termination provisions the normal payment terms (which were draconian if a Pay Less Notice was missed) could be distinguished and not followed.
By this slight of hand, the Court was able to hand down the draconian decision in Seevic despite having earlier allowed a valuation to take place.

Galliford Try Building Ltd v Estura Ltd
JCT Design & Build 2011.
As with Seevic, Galliford Try won Adjudication No.1 by default (No Pay Less Notice). Estura tried to have the value of the Works determined in Adjudication No.2.
The Adjudicator resigned based on Seevic.
But after considering the parties’ positions as regards the works and the sums to be paid by default the Court came to the conclusion that the Adjudicator’s decision for £3,928,227 should be enforced but only £1,500,000 should be paid with the remainder (£2,428,227) being stayed until further order.
The judge was mindful of a possible windfall which he wished to avoid and also noted that although this was in relation to an interim account the works were in reality complete and further interim valuations would not address the overpayment if it was later found that this was the case.

To Sum Up
Failure to issue the valid Payment Notices/Pay Less Notices would result in the sum applied for (assuming this was a contractual right) becoming the Notified Sum and thus the Sum Due. There is no right to have that valuation revalued in Adjudication.
Termination Provisions for Payment are different to the normal JCT Payment Provisions and allow for the Sum Properly due to be valued in Adjudication even after the Sum Due based on a failure of notices has been adjudicated and decided.
Final payments had not been addressed but as the JCT forms used the same wording in their final payment provisions as in interim payment provisions it was thought that the same draconian effect would apply.
Where the imbalance between the interim application payment (where there has been a failure in notices) and any remaining interim payment or final payments would not correct the overpayment then the entire amount would be enforced but a sum stayed to avoid a windfall.

WHAT HAS CHANGED?

Subsequent to the position in March 2015 the Courts have considered payment notices and have started to chip away at the draconian effect as stated in Seevic.

Leeds City Council v Waco UK Ltd [2015] EWHC 1400 (TCC)
• Caledonian Modular Ltd v Mar City Developments Ltd [2015] EWHC 1855 (TCC)
• Henia Investments Inc v Beck Interiors Ltd [2015] EWHC 2433 (TCC)
• Harding v Paice [2015] EWCA Civ 1231
• Grove Developments Ltd v Balfour Beatty Regional Construction Ltd [2016] EWHC 168 (TCC)

Leeds City Council v Waco
JCT Design & Build 2011.
Payment schedule up to PC and thereafter at two monthly intervals.
Contractor’s application did not strictly adhere to the payment schedule or two monthly intervals.
Application for payment was 6 days before the bi-monthly date specified.
No payment notice and no payment.
Enforcement denied by the Court and the matter went to trial.
The court found that where there was a requirement for an application to be made on a given date that application was to provide for the valuation of the work properly executed up to that date. As the valuation was six days earlier it was invalid as to up to the given date.
This was despite the Contract Administrator ignoring previous discrepancies as to the date of applications.
Strict adherence is needed to obtain payment and this includes the dates as scheduled and cannot be a few days earlier or later. If missed the Contractor will have to wait until the next valuation date (or if none the Final Account).

Caledonian v Mar City
Contract based on a letter of intent.
The Scheme payment provisions applied.
The dispute concerned a second application for payment which was rather to quick being only two weeks after the first. This application was wrongly numbered 15 when it should have stated 16.
Caledonian issued their invoice for application 16 and claimed this to be a default notice. The adjudicator accepted this to be the case but the Court disagreed.
In refusing to enforce the Adjudicator’s decision it was said:
If the Contractors want the benefit of these provisions [the Act and Scheme] they are obliged, in return, to set out their interim payment claims with proper clarity”.
Accordingly, it is now being seen that the ‘Draconian’ payment provisions will cut both ways. If the Contractor makes an interim application correctly and on time he will benefit from any failure by the Employer to serve a valid Pay Less Notice. If he does not then his claim is likely to fail.

Henia v Beck
JCT SBC 2011
Application for Payment No.18 made on 28 April 2015 for £2.8m.
Interim applications were to be made 7 days before the due date.
Due date was 29 April 2015, thus the application was 6 days late.
No application made in May 2015.
CA issued interim certificates 18 & 19 after the due dates and were themselves late.
As the interim certificates were late the contract provided that the applications became the default notices and were payable save for any Pay Less Notice being issued.
Employer issued a Pay Less Notice on 17 June 2015 showing a zero payment.
When the matter got to court it was found that:
1. The interim application made on 28 April 2015 could not act as the application for the 29 May 2015 due date and accordingly could not act as the default notice for the late payment notice as issued by the CA.
2. That the Employer needed to be able to ascertain whether a document was an interim application under the terms of the contract given the consequences that could flow from it. The document relied upon as an interim application must be in a substance, form and intent of an interim application stating the sum considered by the Contractor as due as at the relevant date and it must be free from ambiguity.
3. In the previous three cases the Employer was able avoid the draconian consequences of the failure to issue valid Payment and/or Pay Less Notices by attacking the applications for payment and showing that they were themselves defective.
4. If you wish to get paid make sure you comply with the contract payment provisions to the letter.

Harding v Paice – Court of Appeal
Following on from the judgement in the TCC that differentiated a termination payment form the usual payments under the JCT.
Court of Appeal dodged the real issues but did say that interpreting the Scheme:
1. Where there is more than one adjudication and it is suggested that the second or subsequent adjudication is referring to the same dispute the actual decision made in the earlier adjudication must be looked at to see how much or how little remains available for consideration by the second or subsequent adjudicator.
2. The previous dispute dealt with the payment notices and did not value the works. This left open the ability to refer the valuation of the works to a subsequent adjudication.
3. On an initial reading of this judgement it would appear to leave open the ability to value works in all payment disputes even where the notice procedure makes it clear that the sum due is the sum applied for. This would be a mistake.
4. The Court of Appeal was working on the basis of a termination account where a negative valuation is possible. Interim valuations cannot be valued negatively and the ability to value the works to show a lesser sum was in fact due would be pointless. The Court of Appeal left this question open and conclusions based on this judgement should not be set against interim valuations.
5. It is also open as to whether this does in fact extend to final accounts and final payments.
6. However, I would not be surprised if this is interpreted to cover final accounts as well as termination accounts.
7. Interim accounts remain for the moment set in stone if the Contractor issues his applications for payment in strict accordance with the Contract.

Grove Developments v Balfour Beatty Regional Construction
JCT Design & Build 2011.
The court had to decide what happened when a payment schedule runs out. Not an unusual occurrence.
Schedule went up to No.23 on 16 July 2015. Works continued after this date due to delays. Balfour Beatty made an application on 21 August 2015 and Grove Developments ignored it.
Balfour Beatty adjudicated the matter and was awarded £2million.
Question before the Court was whether there was an entitlement to further interim applications for payment after valuation No.23 on 16 July 2015.
The Court decided after a full review of the payment terms in the JCT Contract (as amended) that as there was no express provision for further interim payments after 16 July 2015 no payments could be applied for or made until the final account was settled.

CONCLUSION

• Strict compliance with the payment provisions by the Contractor will result in interim applications, if applicable, being enforced for payment.
• Errors in application dates and/or any ambiguity as to the application will result in the Contractor losing his right to payment as applied for.
• If a schedule for payments has been included without any provision for later payments, then no further payments until the final account.
• Termination Accounts and arguably Final Accounts can be valued even after a failure to issue Payment/Pay Less Notices.