A recent decision from the TCC has provided welcome confirmation as to the effect of a failure to serve a pay less notice and the permissible scope of successive adjudications. The court has confirmed the commonly held view that a failure to issue a valid pay less notice will not forever preclude the paying party from disputing the “notified sum” which becomes payable in the absence of the notice. The court has also confirmed the validity of the practice of adjudicators determining matters which, although previously referred to adjudication, have been left undecided in previous adjudications.

Property developers, Mr Paice and Ms Springall, (the “Employer”) engaged M J Harding Contractors (the “Contractor”) in March 2013 under a JCT Intermediate Building Contract 2011 (with amendments) to carry out works to two residential properties in Surrey.  The relationship between the parties deteriorated and the contract was terminated. Clause 8.12 of the standard JCT form required the Contractor to submit an account in respect of the work executed at the date of termination, which it did, and required the Employer to pay “the amount properly due” in respect of the account within 28 days. 

The Employer did not pay the amount claimed and the Contractor commenced an adjudication claiming no valid pay less notice had been served by the Employer. The adjudicator agreed and ordered the full amount of the Contractor’s account to be paid by the Employer. The Employer paid the award, but commenced a subsequent adjudication challenging the substance of the Contractor’s account and seeking the return of the amounts it had paid.

The Contractor applied for an injunction from the TCC to prevent the Employer’s adjudication proceeding. In support of its application, the Contractor argued that the finding of the previous adjudicator as to the absence of a valid pay less notice meant that the sum stated in the Contractor’s account became the “amount properly due” under clause 8.12 and was no longer open for the Employer to challenge through adjudication. The Contractor also argued that, as the substance of its account had also been referred to the previous adjudicator (in the alternative to the Contractor’s primary case in respect of the pay less notice), it could not be referred a second time to adjudication even though no decision had been taken in the prior adjudication on this point.

The court disagreed with the Contractor and found that:

  • The adjudicator had not determined what was “properly due” to the Contractor within the meaning of clause 8.12.5 of the Contract.  It was, therefore, open to the Employer to have determined, either by adjudication or litigation, the question of what sum was properly due in respect of the Contractor’s account. That right did not, however, detract from the Employer’s obligation to make payment in the meantime due to its failure to serve a valid pay less notice.
  • If the first dispute raised more than one issue or raised issues that were put to the adjudicator in the alternative, and an adjudicator did not decide all the issues or made a decision only on a party’s primary case, such a decision did not prevent a second adjudicator from determining the remaining issues or the alternative case.

This decision provides welcome confirmation on these points and largely reflects existing practices and understandings. Pay less notices (and their absence) continue to have important cash-flow implications for payments under construction contracts, but will not in ordinary cases affect the amount properly due in respect of the payment in question.

Reference: Harding t/a M J Harding Contractors v Paice and another ([2014] EWHC 3824 (TCC)