Payment notices and serial adjudication: further guidance from the TCC

In December last year we reported on two TCC decisions – Harding v Paice and ISG v Seevic – which considered the effect of failures to serve payment and pay-less notices in response to applications for payment (click here and here for our previous Law-Nows). A TCC decision last week has considered this issue further and provides guidance as to how these two decisions are to be applied.

Galliford Try Building Ltd v Estura Ltd

Galliford Try and Estura entered into an amended JCT Design and Build Contract 2011 for the construction of the Salcombe Harbour Hotel in Devon. Near the end of the project, Galliford Try submitted an interim application for payment (number 60) which incorporated an indicative final account. The application included claims of over £1 in relation to Employer’s Instructions and a loss and expense claim for £2.8 million.

Estura failed to submit a payment notice or pay-less notice in response to the application and Galliford Try obtained an adjudicator’s decision ordering payment of the amount claimed in the application. Estura commenced a second adjudication seeking a declaration as to the true amount owing in respect of Galliford Try’s application, however the second adjudicator found that he had no jurisdiction in light of the first adjudication, adopting the approach of the court in ISG v Seevic. Estura nonetheless sought to resist enforcement of the first adjudicator’s decision on the basis that ISG v Seevic was misguided and contrary to the court’s earlier decision in Harding v Paice.

The Decision

The court rejected Estura’s submissions and granted summary judgment in respect of the first adjudicator’s decision (albeit subject to a partial stay in favour of Estura due to exceptional factual circumstances). In reaching his decision, Edwards-Stuart J gave helpful guidance as to how his two previous decisions in Harding v Paice and ISG v Seevic are to be applied in practice:

• These two decisions are not inconsistent and the court had had the Harding decision very much in mind when reaching its decision in ISG v Seevic.
• The difference between the two decisions resulted from the different way in which interim payments and payment on termination are dealt with under the JCT Design and Build Contract.
• The interim payment provisions provide that in the absence of a payment notice or pay-less notice by the employer, “the amount of the Interim Payment to be made by the Employer shall … be the sum stated as due in the Interim Application”. This language underpinned the decision in ISG v Seevic.
• By contrast, the provisions dealing with payment on termination considered in Harding v Paice lack any such deeming language and require payment simply of “the amount properly due in respect of the account”.

Conclusions and implications

One notable aspect of the court’s decision is the absence of any reliance on section 111 of the Housing Grants Construction and Regeneration Act in relation to the position reached in ISG v SeevicISG v Seevic. Rather, the present decision appears to confirm, as indicated in our previous Law-Now, that close attention is required to the specific terms of the payment provisions in any given contract. There would not appear to be any general rule arising under the Act which requires the position reached in the present case and in to apply to construction contracts in general.

The absence of such a general rule is likely to focus attention on the position under alternative forms of contract, such as the NEC. The NEC standard payment terms - supplemented by Y(UK)1 – contain no deeming provisions as to amounts due in default of either a payment notice or pay-less notice. The position under the NEC may therefore remain as per the court’s decision in Harding v Paice with less severe consequences for employers who fail to give notices on time.

To register or adjust your preferences for our updated Law-Now service, please click here.

References: Galliford Try Building Ltd v Estura Ltd [2015] EWHC 412 (TCC)