Where an employer has failed to serve a payment or pay less notice, it is still entitled to have an interim payment valued subsequently, in adjudication.
This was the decision of the Technology and Construction Court (TCC), or, more particularly Coulson J, in Grove Developments Ltd and S&T (UK) Ltd. It is the latest in a series of decisions in both the TCC and the Court of Appeal which examine the statutory regime governing payment mechanisms in construction contracts.
Those involved in construction contracts will be familiar with the need for employers to serve either payment notices or pay less notice in respect of any application for payment by a contractor if they disagree with the sum in that application. Failure to do this will mean that the amount that the contractor applies for is automatically payable.
An earlier judgment in the TCC, ISG v Seevic, found that where an employer under a building contract had failed to serve a pay less notice, it was deemed to have agreed the sum in a contractor's application for payment, and therefore not only had to pay it, but could not subsequently challenge the amount.
The decision in Grove Developments is significant because it contradicts Seevic and will be welcomed by employers, who can now refer interim payment disputes to adjudication, even where they have failed to comply with the notices provisions in such contracts. The contract the parties had entered into was the JCT design and build form.
The court found that if an employer fails to serve a payment or pay less notice in response to a contractor's application for payment, it is still obliged to pay the notified sum, and a contractor will be able to adjudicate if the employer fails to do so.
However, the employer is then able to refer the value of the notified sum to adjudication. The court recognised that it would be more usual for the employer to rectify the over-valuation at the next interim payment date - why incur the cost and delay of adjudication when you can simply issue a corrected application next month? But, if the payment cycle did not allow for this, or there was a significant delay before the next due date, an employer who has failed to serve notices can now seek to rectify matters.
The court was at pains to state that this does not disadvantage a contractor. The contractor's cashflow is preserved because the employer is still obliged to pay the sum in the payment application. However, if this is an over-valuation, the contractor loses nothing by having to repay the amount of the over-payment.
The Grove Developments decision differs from Seevic in finding that a failure to serve the payment notice did not mean that the employer was deemed to agree the contractor's application. Such deeming would be "not only unjustified, but it is also an unnecessary complication, given the clear distinction in the contract between 'the sum due', on the one hand, and 'the sum stated as due'".
The court closely followed the reasoning of the decision in Rupert Morgan Building Services v Jervis. In that case, the Court of Appeal found that an employer was obliged to pay the sum in an interim certificate but stated that that did not preclude the employer "who has paid from subsequently showing he was overpaid. If he is overpaid on an interim certificate the matter can be put right in subsequent certificates. Otherwise he can raise the matter by way of adjudication or if necessary arbitration or legal proceedings".
Although, technically, Grove Developments has the same status as a first instance decision as Seevic, it is likely that Grove Developments will be followed in future, given its consistency with previous Court of Appeal authorities.
Grove Developments Limited and S&T (UK) Limited  EWHC 123 (TCC).
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.