Citation: [2021] EWHC 2441 (TCC)
By a decision dated 21 August 2021 an adjudicator determined that some a payment was due to be paid by the Employer (the Claimant in these proceedings) in respect of application for interim payment number 34 (IA34). The Claimant contended that the decision was invalid and unenforceable on account of the adjudicator’s failure to take into account one of the Claimant’s defences.
In the event of non-payment of the sum awarded by the adjudicator the Contractor (Defendant) suspended performance of its obligations.
In those circumstances the Claimant / Employer commenced these part 8 proceedings, seeking a declaration that the adjudicator’s decision was invalid ie that it was not obliged to make further payment.
For its part the Defendant / Contractor disputed the claim concerning the validity of the adjudicator’s decision. However the principal focus of the Defendant’s case was that the (prior) payment notice issued by the Employer’s Agent in respect of IA34 was invalid, with the result that (notwithstanding the adjudicator’s determination of the value of the application), the sum applied for by the Contractor was due pursuant to section 111.
HHJ Eyre QC upheld the Claimant’s case as to the validity of the adjudicator’s decision. However: more significantly he also held that the EA’s payment notice was invalid. As a result: (1) the adjudicator’s actual valuation of IA34 was ineffective, whilst (2) the Claimant was left with an obligation to pay the rather greater sum originally applied for by the Defendant.
The dispute related to IA 34, submitted by the Defendant (‘the Contractor’) on 26 February 2021, under which it sought payment of over £1.8 million. The Employer issued Payment Notice 34 stating that the net amount for payment was £0.97 and a further payment notice would be issued in due course. On 9 March 2021, the Employer sent Payment Notice 34a, stating that the net amount for payment was £657,218.50. The Contractor referred the dispute to adjudication. The adjudicator decided that the net sum due on IA 34 was £771,045 meaning the sum outstanding was approximately £103,800, after a £10,000 deduction for the Contractor’s failure to provide a warranty.
In the TCC, the Contractor successfully argued that Payment Notice 34 was not valid because it did not set out the sum which the Employer genuinely considered to be due and nor did it set out a proper basis of the calculation due to an absence of any accompanying material showing how the Employer had arrived at the crucial figure of the gross valuation (unlike Payment Notice 34a). Instead, it was a place holding exercise to gain the Employer time in which to make a fuller assessment of the sum it actually believed to be due.
HHJ Eyre QC also held that the Contractor was right to argue that it was relevant to note that the approach which the Employer adopted in Payment Notice 34, was a repetition of the stance which it had taken in previous payment cycles; first issuing a payment notice for £1 or £0.97 and then issuing a further payment notice (outside the contractual time limit) setting out its true valuation. This was therefore not a case where the Employer had concluded that the earlier valuations had been too high or where there had been some special circumstance causing the Employer genuinely to conclude that despite the passage of time since the previous payment cycle, only £0.97 was due by way of further payment. Further, it was not necessary to find that the Employer was acting in bad faith in some way in order to conclude that this was not an appropriate course to adopt.
Payment Notice 34 did not therefore satisfy the requirements of Pt II s.110A(2)(a) of the Housing Grants, Construction and Regeneration Act 1996 or cl.4.10.2 of the JCT Design and Build Contract (2011 edition). Accordingly, the Contractor was entitled to recover the notified sum per s.111(1) of the Act.
Justin Mort QC appeared for the Contractor, instructed by Edwin Coe LLP.
