Court backs contractor over payment notice failure

An international construction services company has won a £1.1 million High Court ruling after a payment notice was not served.

The ruling issued on 3 December involved ISG Construction Ltd and Seevic College, in Benfleet, Essex, where ISG carried out upgrading work.

In September 2014, an adjudicator ruled that ISG was entitled to £1.09 million, plus interest, because Seevic had failed to serve either a payment notice or pay less notice – where the paying party disputes the sum being sought by the contractor – under the terms of the contract.

Just four days before that adjudication was made, Seevic sought its own adjudication, from the same adjudicator. The High Court said that this was “in the hope that it could obtain a decision in adjudication no 2 that the value of ISG’s works up to the date of the application was less than the amount claimed by ISG.”

In the second ruling, on 10 October, the adjudicator rejected the sum claimed by ISG for loss and expense, of just over £1 million and concluded that the true value was just over £300,000. Seevic did not comply with the first adjudication decision but issued a cheque for £315,450 to ISG on 15 October.

ISG then applied for enforcement of the first adjudication decision and a declaration that in the second adjudication, the adjudicator had no jurisdiction because the issues were the same, or substantially the same, as in the first.

Mr Justice Edwards-Stuart said in the High Court ruling in ISG’s favour that his starting point was the first notice of adjudication, which he said could only be read as “requiring the adjudicator to determine the true value of ISG’s works” at the relevant date. He added: “If the employer [Seevic] fails to serve any notices in time it must be taken to be agreeing the value stated in the application, right or wrong.”

He also found that the employer – Seevic in this case – had not right to demand a valuation of the contractor’s work on any other date other than the valuation dates for interim applications specified in the contract. In this case, the contract was the JCT Design and Build Contract 2011.

While the case involves some complexities, the essential point is that unless an employer serves the necessary payment or pay less notices on or before the date specified in the contract then it is likely that they will have to pay the sum sought by the contractor. Mr Justice Edwards-Stuart said the statutory regime would be “completely undermined” if this were not the case.

This case also highlights the need for both employers and contractors to ensure that the contract particulars are completed correctly. In particular, they must ensure that payment dates, due dates and dates by which notices are to be served are clear and unambiguous.

Research published last year on construction disputes globally revealed that, most commonly, construction disputes arise out of the administration of contracts. As a firm specialising in construction law, Palmers can provide comprehensive advice at all stages of the construction process, including drafting and advising on all forms of construction contracts to mitigate the risk of disputes.

We also recognise the increasing importance that negotiation and mediation can play in dispute resolution as an alternative to litigation and offer particular expertise in this area. For more information, please contact Adam Davis.