Tony Bingham cheers the appeal court judges who have hacked away 20 years growth of confusion around payment notices

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This is all about our beloved adjudication machinery. The Court of Appeal judge Sir Rupert Jackson said: “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.” Let me add: and smack bang up at the front, in the midst of that thicket, wielding machetes, are the adjudicators. For 20 years we have been trying to hack what the hell that part of the Construction Act is all about. Well, now, this case of S&T (UK) Ltd vs Grove Developments Ltd has hacked out a clearing. And not before time.

Time and again, the payer is either idle, lackadaisical or downright silly when it comes to paying the account on its precious building project. The payer makes a mess of sending the payment notice, and telling the contractor what cash it will soon see dropping through its letter box. The Construction Act is plain: if you don’t pipe up with a payment notice saying what sum you will pay, or don’t pipe up instead with a withholding or pay less notice, you are (how to put it?) well and truly stuffed. The game is easy: “pipe up or pay up”. And then what do you have to pay up? You pay the contractor’s figure in his payment demand – even if his figure is wrong or downright silly. And the payer then wails and moans in agony. 

 “Parliament intends the payer to play the good manners card. It’s downright rude not to tell the contractor payee if you have no intention of agreeing with what his account says is payable”

Parliament intends the payer to play the good manners card. It’s downright rude not to tell the contractor payee if you have no intention of agreeing with what his account says is payable. But sometimes the payer decides not to bother anyway – because if the contractor becomes peeved at your piece of push-back paper, he can call for an adjudicator immediately to decide whether the payer or payee is right.

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Contractors S&T (UK) Ltd played a blinder on this case. Their interim account #21 was for £25.6m or so, on the new Premier Inn at Heathrow Terminal 4. Practical completion was then achieved and interim #22 issued. It was a whopping £39.7m! Yes, the gross sum had grown by £14m. And then, oh dear, Grove Developments Ltd boobed: it failed to send the payment notices. This was a moment for S&T (UK) to smile – pay up time. Grove Developments argued that its notice was given. The adjudicator said, “No, it wasn’t …” so pay up the £14m. Ouch – because Grove Developments now said interim account #22 was very wrong. Grove wanted #22 to be adjudicated for “true value” by a QS adjudicator.

“No, no,” said S&T (UK), the “deemed” true value is as stated in interim #22, being £39.7m gross. And went on to say that even if the £39.7m was way over the top, Grove Developments had to wait until the final account to get the true value figure assessed. Meanwhile S&T (UK) would be very happy to use that £14m in its bank account. But best not to get too comfortable with it – for eventually, repeat eventually, the overpayment may well be recouped. S&T (UK) may not be hard up today – but what of tomorrow? 

So, the key issue is whether a second adjudication can go ahead on interim #22, but this time asking the adjudicator to decide the true value of the works, the variations, the loss and expense and all the usual stuff. That thicket and the machetes have previously led all of us and the judges up the garden path. Some adjudicators, some judges, some folk – myself included – had said that it was an absolute no-no to have a second adjudication on one interim – the first would deal with the notices-only quarrels and any second with true value, but this, we thought, could not be ruled on at that point. Having once decided the money due on #22, that was that. It was one go only. But if there was the next interim valuation #23 just around the corner, I would only allow a complete revaluation adjudication from ground up to reach a new gross figure. And if that #23 revealed an overpayment, I would order a repayment. Some judges, some adjudicators wouldn’t do that unless the contract expressly allowed for overpayment recouping of the cash.

But now the senior judges have hacked through the thicket and sat down in the clearing and decided:

  • The payer who boobs on his notices must pay up what the contractor’s valuation claims
  • A second adjudication to calculate the true value can go ahead on the same interim
  • But it can’t go ahead until the first one is paid up completely
  • And any overpayment is repayable. 

Neat? A little dance is going on around the camp fire in the clearing. It has taken 20 years to get here.

Henceforth, it doesn’t matter that there is a long gap between the final interim and the final account. If the payment notices are flawed or missing, the interim is payable and that same interim can come to the adjudicator again for “true value” valuation, meaning good QS stuff. This second bite is important, even for final accounts. If the payer fails to serve up the right notices, the cash on the final account is to be paid now, then the “true value” fathomed and overpayment repaid. Like it or lump it, the machete has done its job. Now for some more dancing –  there are more pathways to be found. 

Tony Bingham is a barrister and arbitrator at 3 Paper Buildings, Temple