The case of Harding (t/a MJ Harding Contractors) v Paice and another [2015] EWCA Civ 1231 confirms the difference of approach between final accounts and interim payments.


Background

Harding as the claimant building contractor had launched an adjudication where it was decided that Harding was entitled to payment of around £340,000 from Paice, the defendant developers. Earlier, Paice had failed to issue a pay less notice in response to Harding submitting the final account to them following termination.

Paice proceeded to launch a subsequent adjudication seeking a decision on whether the value of the contract works as stated in Harding’s final account was correct. Harding applied for an injunction to restrain Paice from proceeding with this on the grounds that the value of the contract works had already been determined in the earlier adjudication, and that the adjudicator had already issued his decision on the dispute being referred to.

The judge in the first instance decided that the adjudicator’s decision, that Paice must pay the final account sum, did not mean that they were prevented from commencing further proceedings in order to determine the value of the works. The judge also confirmed that it is open for any party to raise an issue that the adjudicator has not decided on. In this case the true value of the final account sum had not been decided by the adjudicator, and so Paice was free to launch an adjudication seeking a decision on it.

Paice appealed this decision.

Decision

The Court of Appeal upheld the first instance decision and confirmed that the failure to serve a pay less notice will not prevent an employer from challenging the true value of the account. An employer was free to launch an adjudication or court proceedings in relation to this.

The Court of Appeal also said that an employer’s failure to serve a pay less notice was of limited consequence. It simply meant that the employer had to pay the amount as stated on the contractor’s account but remained entitled to challenge the sum.

The court further highlighted the difference between interim applications for payment and the contractor’s final account following termination, and the fact that the adjudicator had only dealt with the former in his decision, meaning that this judgement applied only to the final account following termination too.

Implications

This decision has confirmed the difference between the way we approach final accounts and interim payments. Whereas final accounts are open to challenge in the absence of a pay less notice, the cases of ISG Construction Ltd v Seevic College [2014] EWHC 4007 (TCC) and Galliford Try Building Ltd v Estura Ltd [2015] EWHC 412 (TCC) indicate that where a pay less notice is not issued in relation to an interim payment the sum set out in the notice crystallises.