Construction Adviser Alert: Contractual Payment Notices
Published 8 December 2014
By way of a Judgment given on 3 December 2014 in ISG Construction Ltd v Seevic College  EWHC 4007 (TCC), the Court has underlined, if we did not already know, the importance of contractual payment notices.
This is the first reported decision on Payment and Payless Notices pursuant to the new payment regime introduced by the Local Democracy, Economic Development and Construction Act 2009. It provides some useful guidance and some clear lessons.
The lessons from ISG v Seevic are:
- Payment Notices have to be served: In the absence of any Payment or Payless Notice a contractor is entitled to the sums it seeks in its Payment Application;
- Pay close attention to the dates when payment notices should be issued, or suffer the consequences;
- In the absence of a Payment or Payless Notice, the Contractors Application will be the value of the works at that stage;
- Where there is a scenario that an adjudicator decides a valuation on a "technicality" (that there is no Payment Notice/Payless Notice) that is value of the works at that time.
In a ground-breaking judgment, Mr Justice Edwards-Stuart has clarified the new payment regime under the Housing Grants Construction & Regeneration Act 1996 (as amended) and its requirement that employer's pay the "notified sum".
In this matter ISG, made an interim payment application for £1,097,696. Seevic College, the Employer ("Seevic"), failed to provide a payment notice and was then late in providing a payless notice, which meant the latter was ineffective.
ISG commenced an adjudication arguing that its interim payment application became a payment notice in default. The Adjudicator decided that the dispute between the parties did not involve the actual value of the works as at the date of the interim payment application, it only concerned the contract's payment notice mechanism. Accordingly the adjudicator ordered full payment of the amount claimed by ISG plus interest.
Seevic then commenced a second adjudication as to the actual value of the works at the time of ISG's interim payment application. In particular, Seevic requested that the adjudicator order that the difference between the actual value of works and the sum awarded in Adjudication 1 be repaid to Seevic.
The same adjudicator was appointed for Adjudication 2. The adjudicator was invited to resign, but refused to do so on the basis that it was not clear that he did not have jurisdiction. It was considered that it was different dispute, this time about value as opposed to the contractual payment notice regime.
The adjudicator found in the second adjudication that the value of the works due at the time of the interim payment application was £315,450 and that ISG repay Seevic the difference between the sum awarded in Adjudication 1 and that awarded in Adjudication 2.
However, Seevic had yet to pay the sum awarded in Adjudication 1 as it maintained that it could set-off the decision in Adjudication 2 against the decision in Adjudication 1. Consequently Seevic only paid ISG the amount decided in Adjudication 2.
ISG brought proceedings in the TCC to enforce the Adjudication 1 decision and for a declaration that Adjudication 2 was void as the dispute in Adjudication 2 was the same or substantially the same dispute as that determined in Adjudication 1.
The head of the Technology and Construction Court, Mr Justice Edwards-Stuart J, made clear that the above situation would not be allowed by the Court.
He enforced the decision in Adjudication 1 and found that Adjudication 2 was void, and that Seevic could not seek to dispute ISG's payment entitlement by attacking the value of the works outside of the contract's payment notice regime. Edwards-Stuart J found that:
"Absent fraud, in the absence of a payment or pay less notice issued in time by the employer, the contractor becomes entitled to the amount stated in the interim application irrespective of the true value of the work actually carried out. The employer can defend itself by serving the notices provided for by the contractual provisions."