The recent judgment of Mr Justice Fraser in this case has provided fresh evidence for the importance of complying with the notice requirements under a construction contract.
Mr Justice Fraser considered the enforcement proceedings brought by the sub-contractor for summary judgment and the application by the contractor for a stay of execution at the same hearing.
On 20 April 2018, Trant Engineering Ltd (“Trant”) entered into a contract with J&B Hopkins Ltd (“J&B Hopkins”) for the carrying out of mechanical and electrical works at a recycling plant on the Isle of Wight.
On 30 July 2019, J&B Hopkins submitted an interim application for payment (“Interim Application 26”). It contended that Trant issued no payment notice or pay less notice by 11 September 2019 (the last date of payment). J&B Hopkins subsequently issued a Notice of Adjudication in respect of this interim application on 17 January 2020.
In the course of the adjudication Trant made the argument that it had issued a payment notice by means of an email on 12 August 2018 and a pay less notice by means of a separate email on 22 August 2019. It also argued that the interim application had not been ‘substantiated properly’. These arguments were dismissed by the adjudicator who resolved that:
- The emails referred to by the Contractor were not valid as a payment notice or a pay less notice
- The amount claimed in the interim application was due from the Contractor and payable to the Sub-Contractor together with interest (£974,000 in total) with immediate effect
- The Contractor should pay the adjudicator’s fees and expenses
Trant did not pay the amount requested and J&B Hopkins brought enforcement proceedings on 10 March 2020 in order to obtain summary judgment.
Mr Justice Fraser reiterated and confirmed the general principles relevant to enforcement proceedings when an adjudicator’s decision was being challenged. He confirmed that adjudicator’s decisions should be enforced unless it could be shown that there was a jurisdictional challenge or a material breach of natural justice. He went further to remind the court that these principles were subject to two exceptions: (1) where there was an admitted error; (2) where there is a self-contained legal point concerning the timing, categorisation or description of a payment notice or pay less notice. He confirmed that none of these exceptions applied to this case and the contractor had not raised any issues on jurisdiction or the breach of natural justice in its resistance to the sub-contractor’s application for summary judgment.
Trant’s primary argument concerned the existence of a ‘correction principle’ in matters of interim payments and its application to the circumstances of this case. On this basis, it contended that Interim Application 26 had been ‘superseded by subsequent interim payment cycles….and which superseded and corrected the sum payable under the Sub-contract as at August 2019’.
Mr Justice Fraser agreed with the contention that a ‘correction principle’ existed. In this, he confirmed the approach taken in the previous cases of S&T (UK) Limited v Grove Developments Limited 2018 EWCA Civ 2488 and ICI Limited v Merit Merrell Technology Limited  EWHC 1763 (TCC) and rejected the approach taken in ISG Construction Limited v Seevic College  EWHC 4007 (TCC). He stated that the parties were able to carry out a correction for later applications ‘to reflect the true value of the work’.
However, he disagreed with the contractor’s contention that enforcement of the adjudicator’s decision would undermine this ‘correction principle’. Some of the arguments in his judgment can be summarised as follows:
- The application of the ‘correction principle’ to later payment applications had no bearing at all on the specific payment due under Interim Application 26 and the current enforcement proceedings. The fact that the value of later applications could be altered did not mean that the amount due under this Application was not due at all.
- Disputes under earlier payment applications did not go away simply because the payment cycle continues and later applications can be revalued.
“Those disputes on earlier applications do not disappear and cease to exist because a subsequent application is made on an interim basis. Nor does some sort of estoppel operate because a contractor makes another interim application in the cycle”
- Allowing the Contractor’s argument would ignore the fundamental principle set down by the Act that any party should be able to adjudicate ‘at any time’.
- It would threaten to undermine the application of ss.110A, 110B and 111 of the Housing Grants, Construction and Regeneration Act 1996 (the “Act”) and to act as a limit to the enforcement of adjudicator’s decisions
“Upholding the approach urged upon me by Trant would not only create a wholly novel approach by the courts …… but it would, in my judgment, be procedurally unjustified”.
Mr Justice Fraser therefore upheld the Sub-contractor’s application for summary judgment.
Application for a Stay of Execution
The Contractor’s argument that a stay was necessary to prevent ‘manifest injustice’ was rejected by Mr Justice Fraser for the following reasons:
- The losing party to an adjudication cannot refuse to pay on the grounds that it expected to recover the sum in a later adjudication founded upon different issues. On this point, Mr Justice Fraser quoted the case of Interserve Industrial Service Limited v Cleveland Bridge UK Limited  EWHC 741 (TCC).
- It was also not sufficient for the Contractor to say that he was not required to pay as he had complied with the notice requirements on future occasions.
- There was a danger that using the reason of manifest injustice as a means of challenging a valid adjudicator’s decision could result in a re-evaluation of the merits of the dispute. This would frustrate the intention of Parliament and the purpose of the Act.
- Parliament has clearly set out the necessity of complying with the notice requirements and the consequences of failing to do so.
“Serving the relevant and required notices is not an impossible or Herculean task”.
- There was no risk of prejudice to the Contractor as there was no evidence that it was impecunious.
- A correction principle does exist in construction cases – the value of interim payments can be reassessed in future payment cycles in circumstances where the sum in the payment application becomes due to the applicant on the basis that the notice provisions have not been followed.
- However, the application of this principle cannot be taken so far as to deny that the payment under dispute is payable. The value of future interim payments has no bearing on the value of the specific interim payment application under dispute.
- The right of all parties to bring an adjudication ‘at any time’ is paramount and must be safeguarded.
- This case serves as another reminder of the importance of complying with payment notice requirements, particularly where a payer considers a payment application to be incorrect. An adjudication decision founded upon failure to comply with payment notice provisions is valid and is highly likely to be upheld in subsequent enforcement proceedings.
This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any of the issues raised in this article, please contact us today by telephone or email email@example.com.