In the interim, we have seen this case referred to on an almost daily basis as the impact of the decision has been considered by the industry. When seeking to enforce the rights of those demanding payment as well as those rejecting a payment claim, we were navigating uncertain waters. Clarification and confirmation has been eagerly awaited for nearly nine months. As the Court of Appeal states in its decision issued today: ‘We are all trying to hack out a pathway through a dense thicket of amended legislation, burgeoning case law and ever-changing standard form contracts’.
The appeal was on all three parts of Mr Justice Coulson’s decision. The immediate question on everybody’s mind is: what is the Appeal Court’s decision was on the ‘smash and grab’ issue? That is, whether in the absence of valid notices the payer (in this case the employer), must pay the payee (in this case the contractor), and whether the payer can see a ‘true valuation’ of that interim payment in order to recover any over payment?
Sir Rupert Jackson gave the decision for the Court of Appeal, which confirms Mr Justice Coulson’s decision. The Court of Appeal said that ‘the employer, having failed to serve a Payment Notice or Pay Less Notice, is nevertheless entitled to adjudicate to determine the true value of an interim application.’
Sir Rupert Jackson does extend the Court of Appeal's decision beyond Mr Justice Coulson’s reference to the JCT from of Contract, referring to the employer’s ‘statutory obligation to pay the “notified sum”’. So, it is now clear that this applies to all construction contracts and is not limited to JCT contracts.
The Court of Appeal also gives further clarification as to how the employer recovers any difference between the notified sum and the true valuation. The Court recognises the practical and commercial option of recovery of any over payment in the next interim payment. It also acknowledged that this is not always possible. The Court acknowledged the legal and commercial conundrum that has presented those of us who have dealt with recovering a ‘true valuation’ for an employer. The Court of Appeal positively confirmed that it could not duck this tricky issue. Importantly the Court confirmed that ‘both the Act and the contract must be construed as prohibiting the employer from embarking upon an adjudication to obtain a re-valuation of the work before he has complied with his immediate payment obligation’. The Court acknowledged that this could be harsh on employers but said that they must be ‘scrupulous to protect [themselves] by serving timeous Payment Notices or Pay Less Notices.’