If you are reading this construction law blog, no doubt you will be aware of the bank of three cases (namely, ISG Construction Ltd v Seevic College  EWHC 4007 (TCC) Galliford Try Building Ltd v Estura Ltd  EWHC and Matthew Harding t/a Harding Contractors v (1) Gary George Leslie Paice (2) Kim Springall  EWHC 3824 (TCC) decided by Mr Justice Edwards-Stuart, which concerned the common scenario of the contractor’s payment application becoming the ‘notified sum’ under the Housing Grants, Construction and Regeneration Act 1996 (as amended) due to the failure of the employer to issue a payment certificate or a pay less notice.
One of the three cases, Harding v Paice and Springall, recently came before the Court of Appeal. Before we get into the substance of what the Court of Appeal decided, it is worth us first reminding ourselves of the facts of the case and what Mr Justice Edwards-Stuart decided at first instance.
In brief, Harding was contracted to construct and fit out two residential homes under a JCT Intermediate Form 2011. The parties fell out and the contract was terminated. Accordingly, Harding submitted his final account for payment following the termination of the contract and subsequently commenced an adjudication to recover the sum shown in his final account (the “Harding adjudication”), which was decided in his favour as a result of Paice and Springall failing to issue a payment certificate or effective pay less notice. The amount awarded was ultimately paid by Paice and Springall, however, prior to making that payment, Paice and Springall launched their own adjudication in order that the value of the works performed by Harding could be determined (the “Paice and Springall adjudication”). Harding sought injunctive and declaratory relief from the court to stop the Paice and Springall adjudication from proceeding. The basis of Harding’s claim was that all of the issues raised in the Paice and Springall adjudication had already been decided during the Harding adjudication.
First instance decision
Mr Justice Edwards-Stuart dismissed Harding’s claims for injunctive and declaratory relief and concluded that, in respect of the Harding adjudication, although Paice and Springall were obliged to pay the sum shown on Harding’s final account because they had failed to serve an effective pay less notice, they should not be forever deprived from challenging the value stated in Harding’s final account. As such, the Paice and Springall adjudication could proceed.
The Court of Appeal decision
The Court of Appeal upheld the first instance decision of Mr Justice Edwards-Stuart and dismissed Harding’s appeal. It concluded that as the adjudicator in the Harding adjudication had not decided on the merits of Harding’s final account and had instead awarded Harding the sum as stated in his final account due to the lack of pay less notice, Paice and Springall were entitled to have the value of the account determined.
Following the Court of Appeal’s decision in Harding v Paice and Springall  EWCA Civ 1231, it is now clear that, in respect of final account scenarios, the failure by the employer to issue a pay less notice is not fatal, as the employer is not deemed to accept the valuation contained within the contractor’s final account and can have the value of those works determined by a separate action (whether that be another adjudication or litigation). However, somewhat unfortunately, the Court of Appeal decided not to delve into the detail of Mr Justice Edwards-Stuart’s decision in ISG v Seevic where he decided, in respect of an interim payment application, that if an employer fails to serve a payment certificate or pay less notice then it must have agreed the valuation in the relevant interim application and, accordingly, an adjudicator dealing with a claim by a contractor for non-payment by the employer must be taken to have decided the value of the work in respect of the interim application in question. The Court of Appeal passed no comment on whether Mr Justice Edwards-Stuart decision was right in that case, merely acknowledging that in most cases special contractual provisions apply to interim payments which can normally be put right at a later stage.
As a result of the above, the position is respect of final count scenarios and interim application scenarios is different, with the approach to interim applications more advantageous to the contractor. No doubt the difference in approach towards interim applications and final accounts will come before the court again and when it does you’ll be among the first to hear.