Give them their due

i was closely involved in drafting the Construction Bill, and it has been interesting to observe the ever-increasing amount of jurisprudence surrounding this legislation.

The aim of the payment provisions in both the act and its accompanying "scheme" was to provide certainty of payment. Ideally by the final date for payment, the payee should have received the payment that the payer and the paid consider to be due. But we don't live in an ideal world.

Let's assume that the payer has issued a payment notice within five days of the due date specifying the payment made or proposed to be made (as required by section 110 of the act). If the payee disagrees with the amount on offer then it can go to adjudication (although this should not prevent the payer discharging the payment admitted as due).

If the payer decides to issue a separate withholding notice (section 111) before the final date for payment the payee can also have this addressed by adjudication. The point is that in these circumstances the payee will know by the final date for payment that adjudication will be required to resolve the discrepancy in payment expectations.

But what happens if the payer has not issued any notices and ignores the payee's application for payment, or pays less than the amount applied for?

Consider the following scenario. The final date for payment has passed. The payee considers that the application reflects an honest attempt to ascertain the amount due, doesn't go to adjudication and serves a seven days' notice of the intention to suspend the contract. This doesn't provoke a response and so suspension procedures are triggered.

The party that breaks its contract cannot complain about alleged breaches by the other side

Suddenly the payer wakes up and issues court proceedings alleging that the suspension is a breach of contract. The payee's application, it says, does not represent the amount due. How should a court respond?

The payer has not issued a payment notice and, therefore, is in breach of contract. If money has been withheld without issuing a section 111 notice, the payer is in breach of a statutory obligation. In these circumstances, the payer's breach of contract claim is likely to receive short shrift: a party that breaks a contract cannot complain about alleged breaches by the other side. If the court permitted the payer to submit a view of what it should have paid, this would be tantamount to giving succour to a contract breaker.

What if, instead of suspending the contract, the payee decides to refer the matter to an adjudicator? The payee asks the adjudicator to decide that the amount claimed is due. In this situation, the approach of the adjudicator should be no different from that of the court. It need not conduct an inquiry into what was due. The payee's application for payment should be considered as representing the amount due unless there are errors on the face of the documentation (for example, arithmetical errors, which the adjudicator should correct), or the amount claimed is so outlandish that the application is likely to be fraudulent. For the adjudicator to do otherwise would undermine the certainty required by the act. If the adjudicator upholds the application the payer is enabled to recover any overpayment by complying with the act and issuing the relevant notices in due time at the next evaluation.

But we now have to bring on the Scottish case of SL Timber Systems Ltd vs Carillion Construction Ltd in which Lord MacFadyen concluded: "The adjudicator erred in holding that the [claimants] were relieved, by the [defendants'] failure to give a timeous notice of intention to withhold payment, of the need to show that the sums claimed were due under the contract."