Payment notices and serial adjudication … again

We recently reported on a decision from the TCC (Harding v Paice) concerning the effect of failures to serve payment and pay-less notices in response to applications for payment (click here for our previous law-now) . The court ruled that such a failure did not forever preclude the paying party in that case from disputing the amount claimed in the application for payment. A subsequent decision of the TCC has now reached a contrary conclusion on different contractual provisions.

Seevic College engaged ISG Construction pursuant to a JCT Design and Build Contract 2011. The College failed to issue payment or pay-less notices in respect of an application for payment submitted by ISG for approximately £1.1 million. ISG referred the matter to adjudication and obtained a decision in its favour requiring payment of the amount applied for. In the absence of a payment or pay-less notice, the adjudicator found that the amount applied for by ISG had become payable under the applicable JCT conditions. The term in question provided that:

“If the Payment Notice is not given in accordance with clause 4.9.2, the amount of the Interim Payment to be made by the Employer shall, subject to any Pay Less Notice under clause 4.9.4, be the sum stated as due in the Interim Application.”

The College attempted to overcome this result by commencing a second adjudication seeking a determination as to the true value of the Interim Payment. The adjudicator in this second adjudication valued the Interim Payment at less than £1.1 million and ordered that the difference be repaid by ISG.

ISG commenced TCC proceedings contesting the enforceability of the second adjudication, arguing that the true value of the Interim Payment had already been determined in the first Adjudication. The court agreed, finding that the failure to serve notices had fixed the amount of the Interim Payment such that it could not subsequently be contested by the College.

This decision provides important guidance to those dealing with Interim Payment applications under the JCT form of contract and provides an interesting comparison with the court’s earlier decision in Harding v Paice. Parties would be well advised to pay close attention to the specific terms applicable to payments under construction contracts when seeking to judge the effect of any failure to serve a payment or pay-less notice.

Reference: Harding t/a M J Harding Contractors v Paice and another [2014] EWHC 3824 (TCC); ISG Construction Ltd v Seevic College [2014] EWHC 4007 (TCC)