The recent case of Kersfield Developments (Bridge Road) Limited -v- Bray and Slaughter Limited [2017] EWHC 15 (TCC) provides a reminder to all parties on the implications for failing to serve valid payment or pay less notices.

The Background

Kersfield (“the Employer”) and Bray (“the Contractor”) entered into an amended JCT Design and Build Contract, 2011 Edition (“the Contract”), which provided for periodic interim payments. The payment provisions in the Contract provided that any notice delivered by hand or sent by email after 4:00 pm would be deemed served on the next business day. The Contract also provided that interim applications should be accompanied by “further information” as specified in the Employer’s Requirements.

The Contractor’s interim application 19 was valued at £1,208,279.39 and was submitted on 5 August 2016. In accordance with the Contract the due date was 19 August. The Employer’s payment notice was due by 10 August 2016 and any pay less notice was required to be served by Sunday 14 August 2016.

The Employer’s agent purported to issue both the payment notice and the pay less notice on Friday 12 August 2016. The email that contained the pay less notice was timed at 9:50 pm. In accordance with the Contract the pay less notice was deemed served on Monday 15 August 2016 and was therefore late.

The Contractor was subsequently paid an invoice of £78,224.26 (the amount contained in the Employer’s (late) payment notice) and unsurprisingly it referred the dispute over the balance to adjudication.

The Adjudicator’s Decision

The adjudicator found that the Contractor was entitled to payment in full in respect of the sums claimed within its interim payment notice however, the Employer disagreed and applied to court to have the matter determined. At the same time, the Contractor applied for summary judgment to enforce the adjudicator’s award.

The Court’s Decision

Given the court’s continuing robust and consistent approach to the Housing Grants, Construction and Regeneration Act 1996 (“Construction Act 1996”) payment provisions, it is unsurprising that the court agreed with the adjudicator’s finding and held there was a valid interim application and the employer failed to serve a valid payment or pay less notice.

The court held that the manner of service (email) and deemed date of service (next business day if sent after 4:00 pm) provided certainty as to the date that notice would take effect and that such a provision was both “reasonable and sensible”. This meant that the Employer had failed to serve a valid pay less notice and the Contractor was entitled to the sum set out in its application.

The Employer argued that the ‘further information’ supplied by the Contract with its interim payment notice failed to substantiate two of the component sums. The court confirmed that parties to a contract are free to agree additional requirements as to the form, content and substantiation of an application for payment, provided always that the requirements do not conflict with the Construction Act 1996.

In this case, whilst the Contract stipulated that interim applications for payment were required to be accompanied by the information contained in the Employer’s Requirements it did not expressly provide that applications would be invalidated in the absence of such supporting information. The court noted that a deficiency in substation of an application might justify the Employer rejecting part or the entire claim, but it would not render the application invalid. To do so would introduce uncertainty into the payment process and enable an Employer to avoid serving a payment or pay less notice simply by challenging a Contractor’s entitlement.

A further issue arising from the case was whether the Employer was entitled to commence a further adjudication seeking a ‘proper’ valuation of the works to determine the sum due under interim application 19. The court held that where a particular interim payment had been fixed by the default notice mechanism, there was no contractual basis on which to revise the payment by reference to a proper valuation of works and therefore there is no relevant dispute that can be referred to adjudication.

Comments

This case is a remainder of the strict requirements to ensure that payment notices are served on time and in accordance with the contract provisions. This is yet another example of the courts reluctance to interfere with clear and concise contractual obligations provided that the Construction Act 1996 is adhered to.