[2018] EWHC 123 (TCC)

The Judge then considered whether Grove was entitled to commence a claim for a finding as to the true value of the sum due. In other words: can an employer, whose payment notice or pay less notice is deficient or non-existent, pay the contractor the sum stated as due in the contractor’s interim application and then seek, in a second adjudication, to dispute the sum that was due?

Mr Justice Coulson said that there were six separate reasons why the answer to that question was yes.

First, the court can decide the ‘true’ value of any certificate, notice or application and that, as part of that process, it has an inherent power to open up, review and revise any existing certificates, notices or applications. Therefore in any case where the parties have conferred upon an adjudicator the power to decide all disputes between them, the adjudicator has the same wide powers as the court.

Second, there is therefore no limitation on the nature, scope and extent of the dispute which either side can refer to an adjudicator. For example, paragraph 20 of the Scheme, says that an adjudicator may open up, revise and review any decision taken or any certificate written by any person referred to in the contract unless the contract states that the decision or certificate is final and conclusive. There is therefore also no limit on the power or jurisdiction of an adjudicator which would prevent him or her from doing the same.

Thirdly, the dispute which the employer would wish to raise in the second adjudication is a different dispute from that which was determined in the first. In the first adjudication, the issue would be whether or not the employer’s payment notice and/or pay less notice was deficient or out of time. If the adjudicator in the first adjudication found that the employer’s notice(s) was deficient or out of time, then the contractor would have an unanswerable right to be paid the sum stated in its own application or payment notice. That is the only jurisdiction given to the adjudicator who will not be concerned with any detailed matters of valuation.

Fourthly, the words in the JCT contract expressly differentiate between “the sum due” (clause 4.7.2) on the one hand, and “the sum stated as due” in the payment notice or the pay less notice (clause 4.9), on the other. The Judge asked why the contract deliberately uses different terms. “The sum due” is identified in clause 4.7 because that is the result of the contractual mechanism designed to calculate the contractor’s precise entitlement (the “true” valuation). It is the process by which the correct amount, calculated to the penny, is arrived at. That is a very different thing to “the sum stated as due.” Clause 4.9 provides that, in the absence of a payment notice and/or a pay less notice from the employer, it is “the sum stated as due” which will be payable.

Fifthly,  the right for an employer to refer the dispute about the true valuation to adjudication, once he has paid the sum stated to be due, arises from considerations of equality and fairness. It is not controversial that, if an employer serves a payment notice or a pay less notice which is in a lower sum than that for which the contractor has applied, the contractor can refer the dispute about the “true” value to adjudication. It would be wrong in principle to prohibit the employer from doing that which the contractor can do: there can be no justification for such radically different treatment.

Sixthly, the Judge concluded that there was no difference between the payment rights and obligations of the parties in respect of interim payments, and those arising in respect of the final payment.

Mr Justice Coulson went on to analyse the relevant CA and TCC cases. He noted that in Rupert Morgan Building Services v Jervis [2003] EWCA Civ 1563, LJ Jacob’s approach was that: ”without a valid pay less notice, the employer, must pay up, but if they have overpaid, they “can raise the matter by way of adjudication”. In Mr Justice Coulson’s view:

“the Court of Appeal authorities all point the same way. An employer who has failed to serve its own payment notice or pay less notice has to pay the amount claimed by the contractor because that is “the sum stated as due”. But the employer is then free to commence its own adjudication proceedings in which the dispute as to the ‘true’ value of the application can be determined.”

The Judge also considered the numerous cases in the TCC. Here the Judge disagreed with the approach of Mr Justice Edwards-Stuart in the cases of  ISG v Seevic, and in Galliford Try v Estura (Dispatch 178), that  by failing to serve a notice in time or with proper contents, the employer had agreed, or must be deemed to have agreed, that the amount claimed was the “true” value of the interim application. He noted that there is usually no basis in fact for any alleged agreement. Nor is there any basis for deeming any such agreement either. What has happened is that the employer has failed to serve a proper pay less notice, and has therefore raised no effective challenge to “the sum stated as due”. So that stated sum is due under the contract. But this does not mean that the employer can be deemed to have agreed that that sum represents the “true” value of the application

Mr Justice Coulson noted that in the Galliford Try case the Judge recognised that, because of the likely delay until the final account, there was the risk of injustice if the whole sum was paid over to the contractor. That led to a stay of execution in respect of more than half the sum which had been ‘agreed’ as due. The stay was an attempt to do justice but in the view of Mr Justice Coulson, it was still unsatisfactory: because if the employer was to be deemed to have agreed the full amount claimed, how could they be entitled to a stay of execution in respect of any part of it.

Finally, Mr Justice Coulson considered what he termed the “doomsday scenario” or the suggestion that if an employer could start a second adjudication as to the “true” value, it would destroy the policy underlying the 1996 Act. He did not agree. One of the purposes of the 1996 Act was to ensure that the contractor was entitled to maintain proper cash-flow. Here, the contractor would not be prejudiced in respect of cash-flow at all, because he would be recovering the full amount for which he had claimed in his interim application. That amount would have to be paid by the employer. The Judge said that if a second adjudication took place thereafter, which concluded that the contractor had over-claimed, the contractor would have to repay the amount of the overpayment. A contractor should not be entitled to hang on for lengthy periods to sums to which, on a proper analysis, he was not entitled.    

Cash-flow must not be confused with the contractor retaining monies to which he has no right. Mr Justice Coulson concluded that:

“In addition, I note that the contractor has always had the right to raise the question of the true value of a pay less notice in a second adjudication, and it has never been suggested that that is somehow contrary to policy or the operation of the 1996 Act. The sky has not fallen in, just because the contractor has a residual right to challenge the ‘true’ value of the sum stated as due in a pay less notice. I am confident that there will be no significant adverse consequences if the employer is able to exercise a similar right.

“For all these reasons, therefore, I do not consider that the conclusions which I have reached strike at the heart of the adjudication system. On the contrary, I believe that it will strengthen the system, because it will reduce the number of ‘smash and grab’ claims which, in my view, have brought adjudication into a certain amount of disrepute.“

Read Part 1 and Part 3