Payment Notices Again – How long can the Contractor keep the money?

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Galliford Try v Estura Limited [2015] BLR, TCC, Edwards-Stuart J

Facts

Estura appointed Galliford Try to carry out construction works at the Salcombe Harbour Hotel, Devon on JCT Design & Build.  GT made its submission for a further payment of £3,900,000 (interim application no. 60) pursuant to the contract mechanism.  Estura failed to issue payment notice under Section 110 of the Construction Act and therefore GT’s application stood as a binding payment notice by the “payee” under Section 110B of the Construction Act, 1996.  This meant that Estura had to pay the whole of the sum notified in the “payee’s notice” unless it issued a Notice to Pay Less not later than the prescribed period before the Final Date for Payment.

An Adjudicator ruled the whole sum was due as stated in the Payee’s Notice which was £3,900,000 plus VAT.  Estura refused to pay and Galliford Try applied for summary judgment to the High Court.

Held

The same judge had previously ruled in ISG v Seevic College [2014] that an employer who lost an adjudication in these circumstances, could not bring a second adjudication to determine the value of the work actually done as at the valuation date of the relevant interim application in order to circumvent the Adjudicator’s Decision that he should pay the sum stated in the interim application.  Nevertheless, there was nothing to prevent an employer from challenging the value of the work upon the next application; even if this meant consenting for a figure that was lower than the sum successfully ordered to be paid in the preceding application.

The normal order by the Court would therefore be that the employer should pay up the whole of the adjudicated decision and if he was unhappy with the consequences then he could try to persuade an adjudicator, in a second adjudication, that a revised interim valuation of the Works was appropriate.  Even if it resulted in the contractor having to make a refund.  In this case however, such an order would not be appropriate because interim application no. 60 was probably going to be the last interim application and there was therefore no mechanism in place to permit Estura to make an adjustment through the valuation process.  Estura was however ordered to pay only £1.5m plus VAT with the balance stayed until further order.

Comment

The Court seems to have got itself into a rather convoluted situation as a result of the decisions in ISG v Seevic College and Harding v Paice.  Here the same judge took the opportunity to straighten matters out.

Despite the complex reform of the Payment Notices regime of the Construction Act following the 2009 amendments, contractors will still have difficulty in actually getting paid and keeping the money.  The present regime now seems to be that if an employer does not get his paperwork in order, and fails to issue an appropriate payment notice, then either an application by a contractor or a subsequent payee’s notice by contractor will have binding effect.  The employer will then be obliged to pay the sum stated unless he issues a valid Notice to Pay Less.  The Courts are clearly, as a matter of policy, committed to enforcing adjudication orders except where real injustice would flow (for example the extraordinarily high amount of this application and the particular circumstances of an imminent final account).  The contractor may not get to keep his money for very long, however.

It is clear now that a discontented employer will have to pay up on the adjudication award, but can then re-visit the actual value of the work done and materials supplied in the next valuation stage that comes along.  If, in good faith, the employer and/or his contract administrator considers that the true value of the work done cumulatively is less than that taking into account the sums paid in adjudication, then the next valuation will probably produce a negative balance against the contractor.  That subsequent process can itself then be enforced in adjudication.  Bearing in mind that each party bears its own cost of what can be a very expensive adjudication process, the contractor should think long and hard before aggressively pursuing failures by an employer to produce Payment Notices or Notices to Pay Less.

For more information, help or advice please contact Rob Langley on 0191 211 7975 or [email protected].