A TCC decision last week has further clarified the implications for Employers who fail to serve payment or pay less notices under the JCT Design and Build form of contract. The decision follows previous cases on this topic and rejects a new argument that an adjudicator’s power to “open up, revise and review” allowed the true valuation of an interim payment application to be adjudicated despite the absence of a payment or pay less notice.

Kersfield Developments (Bridge Road) Limited v Bray and Slaughter Limited

Kersfield engaged Bray to carry out the construction of detached houses and the refurbishment and conversion of a mansion house and stable block at a site in North Somerset. The contract between the parties incorporated the JCT Design and Build 2011 conditions with amendments.

Bray issued payment applications on a monthly basis throughout the works. Its payment application 19 for £1.2 million was submitted on 5 August 2016. Any pay less notice was required to be served by Sunday 14 August 2016. Kersfield’s agent attempted to send such a notice, as well as a belated payment notice, at 9.50pm on Friday 12 August 2016. However, an amendment to the usual JCT terms provided that email communications sent after 4pm were deemed to have been sent on the next business day, with the result that Kersfield’s notices were out of time.

Bray obtained an adjudication decision in its favour for £1.2 million based on Kersfield’s failure to serve a payment or pay less notice within time. Kersfield commenced TCC proceedings seeking, among other things, a declaration that it was entitled to commence a further adjudication to determine the true value of Kersfield’s payment application 19.

Power to “open up, revise and review”

Previous cases have determined that under the JCT Design and Build 2011 form an Employer is precluded from challenging the true valuation of an interim application where it has failed to serve a payment or pay less notice within time. For an overview of these cases, please see our most recent Law-Now on this topic here.

Kersfield sought to overcome these cases by relying on paragraph 20 of the Scheme adjudication rules, which were incorporated into its contract with Bray. Paragraph 20 states that an adjudicator may, “open up, revise and review any decision taken or any certificate given by any person referred to in the contract unless the contract states that the decision or certificate is final and conclusive”.

Kersfield argued that this power extended to payment notices and pay less notices, so that an adjudicator could substitute the true valuation of an interim payment application for the amount given in a payment notice (including a payment notice deemed to have been given by Bray in the absence of any payment notice from Kersfield). Kersfield argued that the references in sections 111(8) and (9) of the Housing Grants Construction and Regeneration Act (as amended) to an adjudicator awarding payment of a higher amount than stated in a payment or pay less notice supported this interpretation.

The court rejected this argument, finding that payment and pay less notices did not qualify as “decisions” or “certificates” under paragraph 20 of the Scheme. Sections 111(8) and (9) were not based on an adjudicator making an upwards revision of an Employer’s payment or pay less notice, but were freestanding provisions requiring the payment of additional sums where so decided by an adjudicator.

Conclusion and implications

This case provides further clarification as to the consequences of failing to serve payment or pay less notices under the JCT Design and Build 2011 form of contract. The case adds to the growing list of failed attempts by Employers to re-open interim payment applications where payment in full has been required in the absence of a valid payment or pay less notice. Most of these decisions concern the JCT Design and Build 2011 form of contract and confirmation is still awaited from the court as to the extent to which a similar position will apply under other forms of contract. With regard specifically to the arguments raised in this case, paragraph 20 of the Scheme rules would appear to be drawn in narrower terms to the equivalent provision in the standard NEC Engineering and Construction Contract, which refers to an adjudicator reviewing and revising “any action or inaction of the Project Manager”.

References:

Kersfield Developments (Bridge Road) Ltd v Bray and Slaughter Ltd [2017] EWHC 15 (TCC)