EWCA Civ 1735
This case concerned a professional services appointment. Adam had been engaged by Halsbury, a property developer, in connection with a residential development in Norfolk. Adam provided a fee proposal to carry out design works under an appointment that would be subject to RIBA Conditions. Following acceptance of the proposal on 19 October 2015, Adam commenced work. However, Halsbury terminated the engagement with no prior notice to Adam on 2 December 2015 opting to proceed with a local architect instead. The following day, Adam submitted a final invoice for work done up to 2 December 2015 in the sum of £46,239. Halsbury did not provide a pay less notice and did not pay Adam’s invoice.
Adam commenced an adjudication to recover payment of its final invoice, together with payment of an earlier invoice in the sum of £747 and taking into account a credit for the sum of £1,246. The adjudicator found in favour of Adam, essentially because Halsbury had failed to serve a pay less notice in respect of either invoice.
Halsbury did not comply with the decision, instead issuing Part 8 proceedings seeking, amongst other things, a declaration that the pay less regime did not apply to the 2 December 2015 invoice and so Halsbury was not liable to pay it. Adam issued adjudication enforcement proceedings. Mr Justice Edwards-Stuart found in favour of Halsbury, granting the declarations as sought by Halsbury and dismissing Adam’s claims. The Judge considered that:
(i) Halsbury’s email to Adam dated 2 December 2015 was a repudiation of the contract.
(ii) Adam had accepted the repudiation by its two emails of 2 December 2015, by stopping work on 2 December 2015, and by issuing its invoice on 3 December 2015.
(iii) Halsbury was not contractually required to serve a pay less notice, for three separate reasons. The contract had been discharged which meant that neither party was required to perform its primary obligations under the contract. The 3 December 2015 invoice was a final account within the meaning of the last sentence of clause 5.14 of the RIBA Conditions, with the consequence that the invoiced sum was not “the notified sum” as defined in the first sentence of clause 5.14. And finally, the 3 December 2015 invoice was a termination account under clause 5.17 of the RIBA Conditions, with the consequence that the invoiced sum was not “the notified sum” as defined in the first sentence of clause 5.14.
On this basis, the issue had been finally determined and the temporarily binding decision of the adjudicator had been superseded. Adam appealed. The principal issue was whether section 111 of the HGCRA applies only to interim payments or whether it also applies to payments due following completion of the works or termination of the contract. Adam said section 111 of the Act applied equally to payments due under a final account or a termination account when the building contractor or construction professional has completed or ceased work as it did to interim payments.
Halsbury challenged this on the basis that sections 110 and 111 of the Act were limited in their scope. Halsbury relied upon the wording of section 109, which is limited to interim/stage payment instalments, and the principal objective of the Act being to maintain the cash flow to contractors and subcontractors during the course of a project. LJ Jackson concluded that it seemed clear that:
“section 111 relates to all payments which are ‘provided for by a construction contract’, not just interim payments.
Section 111 of the 1996 Act applies to both interim and final applications for payment. I reach this conclusion on the basis of the clear words of the Act and also in the light of the authorities cited. Therefore if Halsbury wished to resist paying Adam’s final account or termination account, then (subject to the repudiation issue) it was obliged to serve a pay less notice. I therefore uphold the first ground of appeal.”
As for repudiation, Halsbury said that it was entitled to terminate the contract of engagement upon reasonable notice. However, it argued that as it had not given reasonable notice, its termination without any notice was a breach going to the root of the contract and so had repudiated the contract. Adam pointed out that under the applicable conditions Halsbury had an unfettered right to terminate the contract. Accordingly, a mere failure to give due notice would be a breach of contract, but not a repudiation.
In dealing with this issue, LJ Jackson assumed (but did not decide) that Halsbury was correct. However, even on this basis, he was not persuaded that Adam had accepted any repudiatory breach. Adam treated the email dated 2 December 2015 as a termination without appropriate notice. Accordingly Adam stopped work and sent an invoice for work actually done under the contract of engagement up to 2 December 2015, and no more. The invoice submitted was an account following termination pursuant to clause 5.15 of the RIBA Conditions, or alternatively simply a bill for work done; either way, it was not a claim for damages for breach of contract. He concluded that in the circumstances, and in the absence of any pay less notice:
“Adam had a cast iron case to recover payment on both of its outstanding invoices.”