An age old warning: get your pay less notices right or expect to pay-up. And don’t serve on a Friday!

01 / 02 / 2018

Kersfield Developments (Bridge Road) Limited v Bray & Slaughter Limited [2017] EWHC 15 (TCC)

In this enforcement case it was decided by an adjudicator that the employer, Kersfield, must pay £1.2million pursuant to a payment application by the contractor, Bray, despite there being serious questions over the true value of the works. In enforcement proceedings the High Court agreed that Kersfield had to pay. 

All may not be lost though for slipshod employers who fail to give notices on time or at all as Kersfield raised a novel defence pursuant to section 111 of the Housing Grants, Construction and Regeneration Act 1996 (the “Act“) and although not successful, has been given permission to appeal.

The facts

The two issues before the Court in Kersfield were:

  1. whether Bray’s interim payment application was a valid application for payment (it was); and
  2. whether Kersfield was entitled to a valuation of the works in interim application No. 19 by way of a second adjudication (it wasn’t).

By a JCT Design & Building Contract 2011 contract, Bray agreed to carry out the refurbishment and conversion of a mansion house. Interim payments were to be made each month and on 5 August 2016 Bray issued an interim application for payment of £1.2 million.  Kersfield failed to pay and, pursuant to the terms of the contract, Bray commenced adjudication proceedings in respect of the unpaid sum on account of the fact that the application was provided in accordance with the terms of the contract and there was no valid payment notice or pay less notice.  The pay-less notice was to be served not later than 5 days before the final date for payment, i.e. by 14 August 2016 (a Sunday).  Notice was served by email at 9.20pm on Friday 12 August 2016 followed up by letter on the same day but under the terms of the contract because the email was sent after 4pm it was not deemed to be served until the next Business day, i.e. the following Monday 15 August 2016.  This was too late.

Unsurprisingly, the adjudicator agreed and ordered Kersfield to pay and Bray enforced the adjudication decision in the High Court. Kersfield alleged, amongst other things, that the adjudicator’s decision was wrong and sought substantive determination on the matter, including a declaration that it is entitled to have the underlying valuation dispute in the relevant payment application referred to and determined in a further adjudication.

The Court agreed with the adjudicator and held that the payment application was correctly made in accordance with the terms of the contract and there was no valid pay less notice.

An Interesting Challenge – Section 111 of the Act

Kersfield argued that it was entitled to refer a further adjudication on the true valuation of Bray’s application. Although payment must be made under Section 111 of the Act in the absence of a payment or pay less notice, the paying party is still entitled to enforce the terms of the contract.

The Court examined the relationship between Section 111(1), which required payment of the notified sum subject to a valid payment or pay less notice, and Sections 111(8) and 111(9), which entitles an adjudicator to open up, revise and review any decision or certificate.

Also considered was the relationship between Section 111(8) of the Act and the fact that the JCT contract makes no allowance for any subsequent revision to the amount of the interim payment but does provide for a final accounting exercise on completion.

The Judge found that Section 111(8) only applied where a valid payment notice or pay less notice had been issued, identifying the dispute between the parties as to the proper sum due in respect of an application for payment. The Judge also observed that the sum to be paid in respect of the relevant application due to the default notice mechanism was the “notified sum” and that there was no provision in the terms of the JCT contract for that sum to be revised, therefore Kersfield had to pay.  Watch this space though as Kersfield have been given permission to appeal on this point.

Comment

This (together with the Court of Appeal’s recent judgment in Adams v Halsbury [2017] EWCA Civ 1735) is the first judicial comment on Section 111 of the Act and hopefully the Court of Appeal will further clarify the relationship between JCT provisions and the Act.