1. When do derogations trump design obligations in construction contracts?

Mace Construct Ltd v Baltic Investment Holdings Ltd [2026] EWHC 976 (TCC) (28 April 2026)

Factual Background

Mace Construct Ltd (“Mace“) and Baltic Investment Holdings Ltd (“Baltic“) entered into a JCT Design and Build 2016 construction contract (“the Contract“) that included a Schedule of Derogations and Tender Clarifications (“the Schedule“). Disputes arose regarding the extent of Mace’s design responsibilities and the allocation of risks associated with planning delays.

In Part 8 Proceedings following an adjudicator’s decision, Mace argued that its design obligations for certain items listed in the Schedule were conditional upon formal approval and instruction by Baltic. Conversely, Baltic contended that Mace bore full design responsibility from a specified date, irrespective of the derogations.

Baltic also:

• requested a declaration regarding which party had planning risk under the Contract; and
• argued that the adjudicator lacked the power to fix a completion date earlier than one fixed by the Employer’s Agent under the Contract

Judgment

The court held that the Schedule was incorporated into the Contract and clarified the allocation of design responsibilities. It determined that the Schedule partially removed Mace’s design obligations for the listed items until  formal instructions were issued by Baltic.

The court rejected Baltic’s argument that clause 1.3 of the Contract overrode the Schedule of Derogations.

On the issue of planning delays, the court declined to grant a declaration, noting that such delays were fact-sensitive and complex, and the relevant contractual provisions were detailed and explicit.

Regarding the adjudicator’s powers, the court confirmed that paragraph 20 of the Scheme for Construction Contracts empowered the adjudicator to revise and review extensions of time by effectively stepping into the role of the Employer’s Agent under the Contract. So the adjudicator did have power to fix an earlier completion date.

Takeaway points

1. The incorporation of documents such as schedules and clarifications into a construction contract must be carefully considered, as they can significantly affect the allocation of responsibilities and risks.
2. The court emphasised the importance of giving effect to all parts of a contract, ensuring that incorporated provisions are not overridden unless explicitly stated.
3. Adjudicators have broad powers under the Scheme for Construction Contracts to review and revise decisions, including those related to extensions of time, provided they act within the scope of their authority.
4. Disputes involving planning delays are highly fact-sensitive and require careful consideration of the specific contractual terms and circumstances is required.

2. When will the court refuse to entertain a Part 8 challenge to resist enforcement of an adjudicator’s decision?

United Utilities Water Ltd v Northstone (NI) Ltd (t/a Farrans Construction)  EWHC 1057 (TCC)

Factual Background

The case involved adjudication enforcement proceedings and a Part 8 claim. United Utilities Water Limited (“UU“), a water and wastewater undertaker, entered into an NEC3 Engineering and Construction Contract April 2013 Option C (“the Contract“) with Northstone (NI) Limited (trading as Farrans Construction) (“Farrans“). Farrans entered into a joint venture collaborative agreement with Roadbridge Limited in respect of the Contract (“the Joint Venture Parties“) for the West Cumbria Supply Project (“the Project“).

The Project was initially valued at £85 million but later increased  through a Settlement Agreement dated 25 July 2018 (“the Settlement Agreement“) and a Deed of Variation dated 30 September 2021 to £131.6million.

The Settlement Agreement changed the contract form to Option A and introduced a milestone activity schedule which permitted the Joint Venture Parties to make more than one application for payment each calendar month (depending on when each activity in the schedule was completed).

The dispute arose over a payment notice, issued by the Project Manager on 11 October 2024 (“the Payment Notice“), which assessed the amount due as minus circa £3m.

The Joint Venture Parties issued what they called a “payment reduction notice” on 17 October 2024 (“the Payment Reduction Notice“) stating that the sum due to UU in respect of the Payment Notice was £nil.

UU argued that the Payment Reduction Notice had been served late by the Joint Venture Parties such that the sum stated in the Payment Notice was due to be paid by the Joint Venture Parties to UU.

UU obtained an adjudication award in its favour, which directed that Farrans make payment. Farrans refused to pay.  UU sought summary judgment to enforce the adjudication award, while Farrans issued Part 8 proceedings arguing that the adjudicator made an error of law in respect of:

• The validity of the Payment Notice; and
• Whether Farrans were required to issue a pay less notice.

Judgment

The court granted summary judgment in favour of UU, enforcing the adjudication award. It rejected Farrans’ Part 8 claim, finding that the issues raised were unsuitable for determination under Part 8 Proceedings as they required extensive factual inquiry. Specifically, the court noted that Farrans’ evidence was insufficient to determine how the relevant notices were received against the background of the parties’ knowledge, the reasons for and effects of the contractual amendments, and the operation of the payment system used in the Project. Factual evidence was required as to how a reasonable recipient would have understood the notices.

Takeaway Points

1. The court reaffirmed the principle that adjudication awards should generally be enforced unless there are compelling reasons not to do so.
2. Part 8 Proceedings are not appropriate for resolving disputes requiring detailed factual analysis.
3. The case highlights the importance of clear and sufficient evidence when challenging payment notices and adjudication awards, particularly in complex contractual arrangements.

This decision underscores the courts’ support for the adjudication process as a swift and effective dispute resolution mechanism in construction contracts, while also emphasising the need for parties to adhere to procedural and evidential requirements when seeking to challenge such awards.

3. Can the residential occupier exception succeed as a jurisdictional challenge and prevent enforcement?

RBH Building Contractors Ltd v James and another [2026] EWCA Civ 511

Factual background

We discussed the Technology & Construction Court first instance decision in respect of this dispute in our August edition of Adjudication Matters here [Adjudication Matters: August 2025 – Walker Morris].

To recap, the parties had entered into a verbal contract for site and project management services for the redevelopment of a luxury home in North Devon. After their relationship had broken down, RBH Building Contractors Ltd (“RBH“) issued a payment application for £663,016.16. Mr & Mrs James responded with a pay less notice.

The Adjudication

A “smash and grab” adjudication followed which RBH won. The adjudicator dismissed Mr & Mrs James’ arguments that they were residential occupiers so fell within the exception under section 106 of the Housing Grants, Construction and Regeneration Act 1996 (as amended) (the “Construction Act“) such that there was no right for RBH to refer a dispute to adjudication.

The adjudicator also found that Mr & Mrs James’ pay less notice was invalid.

The TCC Judgment

The court dismissed RBH’s summary judgment application. The court found that Mr & Mrs James’ pay less notice was valid and Mr & Mrs James had a genuine prospect of establishing that the residential occupier exception applied.

The Court of Appeal Judgment

RBH appealed the TCC Judgment.

Residential Occupier Exemption

The Court of Appeal held that the burden of proof lies with the party seeking to rely on the exemption. There must be an intention to occupy the property at the time that the Contract was entered into. The intention to occupy must be within a reasonable period following completion of the works. The Court of Appeal gave the example that an intention to occupy only after letting the property for 20 years would not be sufficient for the residential occupier exemption to apply.

Here the Court of Appeal held that there was compelling evidence, including GP registrations, of Mr & Mrs James’ intention to occupy the Property as their residence. Although Mr & Mrs James did intend to rent out their home for approximately 25% of the year this did not override the residential occupier exception.

The Court of Appeal agreed with the TCC that the question of whether the residential occupier exemption applied required consideration of conflicting factual evidence and therefore summary judgment was inappropriate. The issue of whether Mr and Mrs James qualified as residential occupiers must therefore be determined at trial.

Pay Less Notice

The Court of Appeal held that Mr & Mrs James’ pay less notice was valid because it sufficiently identified which parts of RBH’s payment application were disputed and provided reasons why they considered no payment was due to RBH, providing “an adequate agenda for adjudication” [1] and for the true value of the works.

Takeaway Points

The residential occupier exemption is highly fact specific and detailed evidence is required to prove the same.

With regards to pay less notices this case endorses:

• The requirement that notices must outline in a “tolerably clear” manner what is being withheld and why [3];
• That the court should avoid adopting an overly technical approach to interpretation, with a focus on substance rather than form;
• Notices should be construed from the perspective of a reasonable recipient, including knowledge of the relevant payment notice.

4. Can invalid payment applications create “notified sums”?

Liberty Roofing (East Midlands) Ltd v Midleton Developments (Church Street) Ltd (unreported), 27 March 2026 (TCC).

Background

Liberty Roofing (East Midlands) Ltd (“Liberty”) is a subcontractor who was engaged by Midleton Developments (Church Street) Ltd (“Midleton”). The parties’ contract was based on the JCT Short Form Sub-Contract, 2011 Edition (“the Contract“), and included a payment schedule setting out specific dates for payment applications and payment notices.

For payment cycles four and five, Liberty served late payment applications. In response Midleton served late payment notices and failed to serve pay less notices. Following Midleton’s failure to pay Liberty the sums stated in their payment notices, Liberty commenced an adjudication.

The adjudicator decided that Liberty’s late payment applications did not constitute default payment notices. He determined that the sums in Midleton’s late payment notices established the notified sums, which Liberty was awarded and Midleton obliged to pay.

Judgment

Summary judgment to enforce the adjudicator’s decision was denied. The court said that the adjudicator was mistaken in finding that Midleton’s invalid payment notices established notified sums.

The court held that timely notices are integral to the operation of the notified sum. Neither late payment applications nor late payment notices can create a notified sum.

Liberty argued that its payment applications were valid because serving them on time was not a condition precedent and the parties had proceeded on an assumed state of facts or law which would be unconscionable to go back on. The Court rejected this argument and said the important test was whether the payment applications and/or payment notices had been served in accordance with the Contract.

Key Takeaways

Parties need to comply with contractual time limits for serving payment applications and/or payment notices. Late applications/notices will not be valid and will not create a notified sum.

References

[1] Advance JV v Enisca Ltd [2022] EWHC 1152 (TCC);

[2] Westfields Construction Ltd v Lewis [2013] EWHC 376;

[3] Advance JV v Enisca Ltd [2022] EWHC 1152 (TCC).

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