Did the developers’ failure to issue a valid pay less notice mean that the adjudicator’s decision that the £397,912.48 must be paid comprise an inviolable determination of the “amount properly due” in respect of the account?

Philip Barnes

The Facts

The claimant building contractor entered into a JCT Intermediate Form of building contract on 25 March 2013 with the defendant property developers for the construction and fit out of two residential properties together with associated works. The contract provided for adjudication. Work commenced in April 2013 but the relationship deteriorated and by 18 September 2013 the developers purported to terminate the contract alleging a failure to proceed regularly and diligently, refusal by the contractor to accept the contract administrator and refusal of access to the site.

The contractor rejected the termination and claimed that his work was ahead of schedule. He claimed he was being delayed by the developer’s failure to appoint a replacement architect and provide necessary design information.

Work stopped during September 2013 and on 20 November 2013 the contractor gave notice of suspension.

On 3 January 2014, the contractor purported to terminate the contract.

In accordance with clause 8.12.3 of the contract, following termination the contractor was entitled to submit his account to the developer and he did so on 8 August 2014 claiming a gross valuation of £797,859.49 of which some £397,912.48 was said to be outstanding. Under the interim certificate mechanism in the contract, payment had to be made within 30 days and any pay less notice issued at least seven days prior to the expiry of the 30 day period. No valid pay less notice was issued, nor any payment made and the contractor commenced adjudication proceedings.

The contractor maintained that this was a simple adjudication. He had made an application for payment. There was no valid pay less notice. Therefore the money was therefore due.

The developers argued that they, not the contractor, had terminated the contract therefore the contractor had no entitlement to payment.

The adjudicator’s decision was issued on 6 October 2014. He concluded that the contractor had terminated the contract and that the contractor was entitled to the £397,912.48, principally because of the lack of a valid pay less notice. On 14 October 2014 the developers commenced adjudication against the contractor alleging the correct value of the contract works was approximately £340,000 and not the £797,854.49 that the contractor had claimed in his account on 8 August 2014.

The contractor applied for an injunction to restrain the developers’ adjudication on grounds that the developers had acted unreasonably and oppressively by commencing adjudication without first having complied with the 6 October adjudication decision.

The Issue

The contractor had submitted a post termination account under which the developers were required to pay the “amount properly due”. Did the developers’ failure to issue a valid pay less notice mean that the adjudicator’s decision that the £397,912.48 must be paid comprise an inviolable determination of the “amount properly due” in respect of the account, thereby making it unchallengeable in later adjudication proceedings?

The Decision

The judge concluded that the adjudicator in the third adjudication had not determined what sum was “properly due” but only that the developers must pay the amount stated in the contractor’s account where there was no valid pay less notice. Accordingly, the developers could require another adjudicator to ascertain the sum that was “properly due” in respect of the contractor’s account. However, the judge noted that this did not give the developers the right to decline to pay the amount specified in the 6 October adjudication decision.

Commentary

This dispute concerned the particular payment provisions consequential upon termination which used different wording to the mechanism for interim certificates and the final account. Nevertheless, it would still have been prudent for the developers to have issued a pay less notice, if only on a protective basis. The contractor contended that this omission converted the sum claimed in the 8 August account to an immutable valuation. The judge thought that this draconian approach could not be right.

Philip Barnes
Fenwick Elliott LLP

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