Contractors sending out more than one payment notice in the hope that the employer will fail to respond to one of them with a payless notice, should take heed: the courts will have none of it

Hamish Lal

Recently a client’s QS and employer’s agent both asked whether it was possible to raise more than one payment notice in one month. They then asked why do High Court judgments name adjudicators in the context of adjudication enforcement proceedings. I could readily understand the provenance of the first question since multiple payment notices were in issue on our project. The provenance of the second was less obvious but it became clear that they had both read Caledonian Modular Ltd vs Mar City Developments Ltd [2015] (TCC) handed down on 29 June 2015. 

Before looking at “multiple payment notices in a month” one ought to note that Caledonian Modular is an exceptional case since it is one where the court addressed a substantive point at enforcement where that point had already been decided by the adjudicator. Readers will be aware of the long line of cases which have followed the principle that it is not open to a defendant to seek to avoid payment of a sum found due by an adjudicator, by raising the very issue on which the adjudicator ruled against the defendant in the adjudication. However, the court responded: “That is, of course, the general rule and it will apply in 99 cases out of 100. But there is an exception. If the issue is a short and self-contained point, which requires no oral evidence or any other elaboration than that which is capable of being provided during a relatively short interlocutory hearing, then the defendant may be entitled to have the point decided by way of a claim for a declaration.” 

So, having established that Caledonian Modular was a one in a hundred case, the court sought to examine the substantive issue as to whether more than one payment notice can be issued in a month.

In Caledonian Modular the payee issued its payment application on 30 January 2015 and the payer issued the payment notice and payless notice on 5 February 2015 (no later than five days after the payment due date). There was no dispute that this was a valid payless notice. 

However, there were discussions afoot about the final account and on 13 February 2015 the payee issued revised payment details. The payee argued that this was a valid payment application and there had been no payless notice issued in respect of it such that the full amount discussed in the 13 February 2015 papers was payable. The real question was whether the 13 February submission was a valid payment application. The adjudicator decided that it was and, in the absence of a relevant payless notice, that amount was payable by the payer. The court decided otherwise for three reasons.

The real question was whether the 13 February submission was a valid payment application. The adjudicator decided that it was and, in the absence of a payless notice, that amount was payable. The court decided otherwise

The court found firstly that the 13 February documents did not say that this was a further application for interim payment. The second reason was that the 13 February documents failed as a point of law. Note what the court said on this point: “It is wrong in law, because interim application 15 had been provided only a fortnight before 13 February, and had been the subject of a valid payless notice. No further interim application could validly be made here until the end of February, in accordance with the 28-day cycle that the parties had agreed and followed. If (which I reject…) the 13 February documents were otherwise a valid claim for an interim payment, I do not accept that such a claim could be made ‘early’, without at the very least that fact being expressly drawn to the defendant’s attention.”

The third reason is also noteworthy because the court said that it is simply not permissible for a contractor to make an interim application, to have it knocked back through the payless notice mechanism, to update that same claim eight days later by adding one small variation worth £6,000, and then, by reason of that update alone, to become entitled to the original application.

The court’s warning is tangible: “Such a sequence would make a mockery of the notice provisions under the act and the scheme. It would encourage a contractor to make fresh claims every few days in the hope that, at some stage, the employer or his agent will take his eye off the ball and fail to serve a valid payless notice, thus entitling the contractor to a wholly undeserved windfall. The whole purpose of the act and the scheme is to create an atmosphere in which the parties are not always at loggerheads.”

It appears that where one payment notice in a month is the agreed cycle, a contractor will not be allowed to unilaterally add another payment notice.

Hamish Lal is head of construction at Jones Day London