Payment applications: Good housekeeping

The case of JG Walker Groundworks Ltd vs Priory Homes (East) Ltd [2013] EWHC 3723 (Technology and Construction Court) concerned a summary judgment application by the claimant contractor, JG Walker Groundworks Ltd (JG) to enforce an adjudication decision against the defendant employer, Priory Homes (East) Ltd (Priory).

By a simple purchase order dated 22 January 2013, Priory had engaged JG to build roads, sewers and groundworks for a development of eight bungalows. The value was “subject to re-measure on completion”.

According to JG, variations and additions to the works were agreed during the project and the value of these was included in payment applications. JG submitted three payment applications, the first on 24 February 2013, the second on 4 April 2013 and the third on 30 April 2013. Priory paid the 24 February and 4 April applications but did not pay the 30 April application in full. On 7 June 2013, it made a payment on account in the sum of £20,000 but refused to pay anything further. The 30 April application which preceded completion, was headed “interim application” and was dated with the monthly valuation date.

In September 2013, JG issued a notice of adjudication which described the variations as part of the contract and referred the dispute to adjudication. On 11 October 2013, the adjudicator awarded JG the sums it claimed on the basis that the application was an interim payment application. Priory did not pay and JG issued an application
for summary judgment on 22 October 2013.

The court made it clear that it is the notice of adjudication and not the referral notice which defines the scope of a referral

Interestingly, the initial skeleton argument which was served on behalf of Priory relied solely on “serious errors and inconsistencies” in the adjudicator’s award such that it could not stand. The court referred to this initial line of defence as being “wholly misconceived” to the extent that they were soon abandoned. On the morning of the hearing, Priory raised two further grounds of defence both of which concerned the jurisdiction of the adjudicator.

The first ground was that the adjudicator lacked jurisdiction on the basis that although the notice of adjudication referred to both the contract and agreed variations, the referral notice only referred to the contract and not the variations and this meant that the adjudicator could only consider the unvaried contract when making his decision.

The second ground of defence related to whether the 30 April application was an interim payment application or a final application for payment. Priory argued that the 30 April application was an application for final payment.

The basis of this argument was that if the 30 April application was an application for final payment, then the adjudicator would have had no jurisdiction to determine whether the amount was in fact due under the interim application. Instead, the only question to determine was when the completion date had occurred because this would in turn determine the final date for payment.

The court dismissed both arguments, finding in favour of the claimant, JG. As to the first ground of defence raised by Priory, the court made it clear that it is the notice of adjudication and not the referral notice which defines the scope of a referral.

As to whether the 30 April payment application was an interim or final application for payment, the court held that it was clear that this application was intended to be an interim application. When making this determination, the court based its decision on the fact that the 30 April application had been headed as an interim payment application. The court also had regard to the date on which the application had been made, the fact that the application had been issued before completion and finally, the fact that it did not bear the characteristics of a final account.

Some useful good housekeeping lessons can be learned from the decision and if sensibly implemented, should help to ward off later challenges.

Firstly, during a project, make sure your payment applications are clearly marked to avoid any doubt as to whether they are interim or final applications.

Secondly, when undertaking an adjudication, always take care to check all your submissions to make sure that all your references (such as contract descriptions, payment application descriptions and project descriptions) are consistent and correct. This should hopefully put a stop to any later challenges as to the scope of definitions.

Sarah Strange is a senior associate in the construction and engineering team at Taylor Wessing