Justin Mendelle, head of construction at Sharpe Pritchard, discusses how a recent case makes clear that although a party is not allowed to re-adjudicate on a procedural matter, it will not be prevented from challenging the value of the works on the next application.
Background

Estura as employer, entered into an amended form of JCT Design and Build Contract 2011 with contractor Galliford Try, in relation to the Salcombe Harbour Hotel in Devon. Towards the end of the project, Galliford Try issued an interim application for payment which valued the anticipated final account at around £12 million. This was approximately £5 million more than the original contract sum.

Estura failed to serve a payment or pay less notice and so under the contract, the amount as payable under the interim application crystallised. Galliford Try commenced the first adjudication and obtained an adjudicator’s decision ordering Estura to pay the sum as stated in the interim application.

Estura then launched a second adjudication seeking a decision that the true amount payable in respect of the interim application should have been much lower. In this adjudication, the adjudicator followed the guidance given in the case of ISG Construction v Seevic College, where it was decided that if an employer fails to serve a relevant notice in response to an interim application, then it will be deemed to have agreed the valuation as stated in that application. In light of this, the adjudicator decided that he did not have the jurisdiction to revalue the works.

Galliford Try applied for summary judgement to enforce the decision of the first adjudicator.

Decision

The judge granted summary judgement in respect of the adjudicator’s decision in the first adjudication. It was held that the first adjudicator had acted within his jurisdiction and that an erroneous decision on his behalf would not be a bar to enforcement in itself. The judge confirmed the approach taken in ISG Construction v Seevic College, whereby it was held that in the absence of a payment or pay less notice, the employer had effectively agreed the value of the works as at the date of that particular interim application, and was prevented from starting a second adjudication to revalue this.

However, the judge stated that this did not mean that there was agreement as to the value of the works at some other date, nor was the employer to be prevented from challenging the value of works in a later application.

But, despite Estura’s failure to serve a relevant notice, the judge granted a partial stay due to the exceptional circumstances of the case. As the interim application in question was likely to be one of (or indeed) the last interim applications made, there would be no opportunity for Estura to correct the position. This would be unfair in light of the high valuation amount and so the judge decided that it should not be enforced in full.

The judge differentiated the outcome in this case and Harding v Paice, with that of ISG v Seevic. He stated that the difference between the two decisions was a result of the different way in which the JCT Design and Build Contract deals with interim payments and payments on termination. Whereas interim payment provisions provide for a crystallisation of the amount where there is no payment or pay less notice, the provisions dealing with payment on termination as dealt with in Harding v Paice, require payment simply of “the amount properly due in respect of the account.”

Implications

The judgement in ISG Construction Ltd v Seevic College (2014) was worrying as it effectively barred a party from starting a counter adjudication in respect of the value of works. However, the decision in Galliford Try makes clear that although a party is not allowed to re-adjudicate on a procedural matter (here, the absence of a payment or pay less notice indicated agreement as to the value of the works), it will not be prevented from challenging the value of the works on the next application. This is because the parties will not be taken to have agreed to the value of the works at any date other than the valuation date relevant to the particular payment certificate.

The judge referred to the outcome in this case as being “exceptional” and that the approach taken here would only be “appropriate in rare cases.” It will be interesting to see what circumstances would differentiate a case as “exceptional”, thus warranting a special approach.

It is also worth noting that the decision in Harding v Paice is being appealed later this year.

These cases highlight the importance of Employers serving timely payment or pay less notices. In the event that the requisite notices are not served in time, the lesson to be drawn from these cases for Employers is this: ensure that any applications which you consider to be wrongly valued are corrected as soon as possible, e.g. at the next interim application or in the final account, if these processes are still available to you. Otherwise, you may find yourself faced with an unfavourable adjudicator’s decision and the need to challenge it or request for a stay against its enforcement in Court, which has itself taken varying approaches to this issue.

For more information on construction law, please contact Justin Mendelle on 020 7061 5948 or email email hidden; JavaScript is required.

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.