The Court of Appeal has recently handed down a decision concerning s111 Housing Grants Construction and Regeneration Act 1996, as amended, and its applicability to Pay Less Notices following termination of a construction contract. For those that may need a brief reminder, s111 obliges paying parties to a construction contract to issue a Pay Less Notice in response to payment application if they do not intend to pay the full amount. Failure to issue a Pay Less Notice will mean that the entire sum in a payment application will become a notified sum and payable in full (which could then be subject to a “Smash and Grab” adjudication).
Under a RIBA form of agreement, Halsbury Homes (HH) engaged Adam Architecture (AA) for services in relation to a housing development project in Norfolk. A short while after entering the contract, HH became unsatisfied with the works performed by AA and informed AA that they were to engage an alternative architect to progress the housing development project.
AA responded the following day with an invoice for the works completed to date. HH did not issue a Pay Less Notice to this invoice, nor did they make payment of the sums claimed. AA commenced an adjudication which found that the pay less provisions contained within s111 applied to the invoice and that as a result, the sums was due.
HH did not make payment in accordance with the adjudicator’s decision but instead issued Part 8 proceedings seeking a declaration that s111 did not apply to the invoice.
AA also issued Part 7 proceedings to seek enforcement of the adjudicator’s decision.
At first instance
The High Court found in favour of HH on the basis that the contract had been discharged so there was no obligation for either party to perform primary obligations (i.e. make payments). In any event the High Court also found that there was no clause within the RIBA conditions which provided for a Pay Less Notice to be provided after termination. Therefore the adjudicator’s decision was not enforced.
The Court of Appeal reversed the decision of the High Court, finding that the issue of the invoice requesting payment was AA’s contractual right and that s111 attaches to interim and final payments and termination accounts. On this basis, as no Pay Less Notice was issued the entire sum claimed in the invoice became due. As a result the adjudicator’s decision was enforced.
This is an important decision, and a timely reminder to paying parties under construction contracts, that upon receipt of any payment application under a contract, even if that contract has since been terminated, that a Pay Less Notice should be issued if it is considered that the entire or part of the sum is not due.
Failure to do so could leave the paying party open to being on the wrong end of an adverse adjudication decision and the additional costs that that brings.