A very exciting day it is today.
It is 'National Stress Awareness Day'. It is also the day when the Court of Appeal decided that even if one party failed to serve the correct contractual payment notices it could still object to paying the other party what it was due.
To use construction law jargon, a failure by an Employer/Payer to serve an effective:
(i) a payment notice; and
(ii) a 'pay less' notice,
does not prevent that Employer/Payer from contesting the true valuation of the work done and, in consequence, the amount properly due to the Contractor/Payee.
Notified sum v. true valuation
The Court of Appeal distinguished between (i) the notified sum and (ii) the true valuation of the work done. Some might say these are, in practical commercial terms, two sides of the same coin but a distinction has been made and it is, I suggest, going to benefit the Employer/Payer. This might not be a bad thing given the growth in the 'claims' industry built on chasing payments (whether properly due or not) where these notices have not been served correctly, if at all.
Pay now, adjudicate later
The Court of Appeal did conclude that the obligation to pay took precedence over the right to adjudicate as to the 'true' value of the work done.
So, in theory, an Employer/Payer hands over the money and then asks an adjudicator for his money back, in part or in full. Nice idea. In the commercial world one can foresee the Employer/Payer hurriedly starting an adjudication without having paid over the money, probably because he fears the Contractor/Payee may never pay him back. Ultimately, the strategy will be to get an adjudicator's decision on the 'true value' before ever actually having to part with the money.
Of course, I may be wrong and the Employer/Payer could pay over the money trusting in the Contractor/Payee's good nature to reimburse him. Unfortunately, even in this world of partnering, collaborative working and alliance contracts, I doubt this will happen.
The Court of Appeal also dealt with what can constitute a 'pay less' notice and the giving of notices in respect of the deduction of liquidated damages or LADs under standard JCT building contracts. In this case it was the D&B 2011 form.
A 'pay less' notice can now make reference to other documents sent previously, i.e. the notice does not have to attach each and every document referred to be effective. This is a common sense outcome.
As for LADs, no particular time must elapse between giving the notice that the Employer may withhold or deduct LADs and the actual notice withholding or deducting them. The giving of these two distinct notices is often over-looked. If you are unsure what they are then grab your copy of the JCT 2011 or 2016 D&B form and read clause 2.29.1 and 2.29.2.
Those fine people at Keating Chambers have published an excellent summary with a link to the decision itself (see the link below).
Our own more in-depth analysis of this case is to follow. In the meantime, best wishes for a stress free National Stress Awareness Day.
On 7 November 2018 the Court of Appeal handed down its judgment in this landmark case on the proper operation of the payment provisions under the amended provisions of the HGCRA. In summary, Coulson J’s first-instance judgment was upheld in respect of each of the three issues which had been raised by way of S&T’s appeal.