Commonly, a contractor will submit an application for payment to its employer. The employer will issue a payment notice detailing how much it is willing to pay for the works undertaken or, failing to do this in the necessary timescale, it will issue a pay less notice to a similar effect. An employer has two opportunities under the Act to contest and challenge the value of the works performed which a contractor which will have assessed itself.
However, the recent decision in Grove Developments has given employers a third bite at the cherry.
Held: The court found that the second adjudication was invalid as the issue of ISG’s entitlement had already been determined in the first adjudication.
The Seevic approach was generally approved by the courts but not without some reluctance on occasions. There was always the temptation on the part of the contractor to inflate its claims for payment, which would have to be paid if there were oversight on the part of the employer. Generally the consensus was that any further assessments of the value of the works could be resolved in the next application for payment, rather than by a second adjudication. The problem would be if there were a limited opportunity for the recovering of an overpayment previously made. The employer only had two opportunities to dispute the application for payment, either by a payment notice or a pay less notice.
Coulson J in Grove Developments disagreed with the Seevic decision.
Held: Coulson J found the pay-less notice to be valid. Both parties were aware of the other document which contained the calculation and “On the facts of this case, the reasonable recipient would have known precisely what sum was being deducted and the basis of its calculation” [para 41].
Notwithstanding his assessment of the status of the pay less notice (which made the second claim unnecessary), Coulson J gave his view on whether Grove was entitled to adjudicate on the “true” value of the works. His answer was yes, for the following six reasons:
The decision in Grove has given employers a third opportunity to contest the value of the works performed by the contractor, despite their failure to comply with the Act. The Seevic case originally argued that this approach was contrary to the legislature's intentions. This decision stated, in summary, that the issue of the valuation of the work was a different dispute which could be referred to an adjudicator at any time.
Coulson J's decision in Grove is currently being appealed. We will have to wait until February 2019 to see if it will be upheld by the Court of Appeal. He has recently himself been elevated and now sits as a Lord Justice in that same court. It is assumed he will not be entitled to try this case again to prove his earlier decision was correct!
In the meantime, it is important that contracts make clear how and when payments are to be decided and when they are to be made - these provisions also need to comply with the Act. The key is to understand your obligations and liabilities as a party to a construction contract and to have systems in place to ensure deadlines are not missed.