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A further reminder of the courts approach with service of valid payment notices in Kersfield

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21/04/2017

The recent decision of Kersfield Developments (Bridge Road) Ltd v Bray and Slaughter Ltd [2017] EWHC 15 (TCC)  is the latest in a line of TCC cases to clarify the risk for paying parties who fail to serve valid payment notices or pay less notices.

Here, the court made clear that an adjudicator cannot “open up, revise and review” the true valuation of an interim payment application in circumstances where no valid payment notice or pay less notice has been served.

Background

Kersfield Developments (Bridge Road) Ltd (“Kersfield“) engaged Bray and Slaughter Ltd (“Bray“) under a JCT Design and Build Contract (2011) with a schedule of amendments (“the Contract”), to refurbish a mansion house and stable block and to construct a number of detached houses.

The Contract provided that the due date for Kersfield to make payment to Bray was the fifth day of each month (commencing on 5 February 2015) or the nearest Business Day.

No later than 5 days after each due date, Kersfield was to give a payment notice to Bray with any pay less notice to be served no later than 5 days before the final date for payment. The final date for payment was 14 days from the due date.

Bray submitted its interim payment application 19 on 5 August 2016 for £1,208,279.39 with various supporting documents. Kersfield was required to serve any payment notice by 10 August 2016 and any pay less notice by Sunday 14 August 2016. The Contract provided that email communications sent after 4pm were deemed to be served on the next Business Day.

Kersfield’s Employer’s Agent acknowledged that its payment notice was late and sought to correct this by serving a pay less notice by email at 9.50pm on Friday 12 August 2016. The pay less notice was deemed served on Monday 15 August 2016, which was 1 day late.

Bray commenced adjudication seeking payment of the full amount applied for in its interim payment application. The Adjudicator accepted Bray’s claim.

Enforcement

Kersfield did not comply with the Adjudicator’s decision and Bray commenced enforcement proceedings. At the same time Kersfield issued separate court proceedings seeking a final determination as to the true value of Bray’s works as at interim application 19.

The two key issues before the court were:

  • whether Bray’s interim application 19 was a valid application for payment and/or whether Kersfield was estopped from arguing that the application was invalid through a course of dealing and
  • whether Kersfield was entitled to “open up, revise and review” the true valuation of an interim application where it had failed to serve a valid payment notice or pay less notice.

Validity of the application

In respect of issue 1 above, the court agreed with the Adjudicator’s decision and found that interim application 19 was valid.

The interim application set out the sum due and the basis on which that sum had been calculated and was clear and unambiguous in its form and substance. This was all that was required.

Kersfield argued that the interim application was invalid because it did not include sufficient supporting documents. The court commented that, a lack of substantiation may have justified rejection of a claim, but it did not in itself invalidate the application. Kersfield’s remedy for the lack of or inadequate substantiation would lie in the payment notice or pay less notice. As such, the interim application was valid and Kersfield were required to pay up.

As a side point, the court also considered the estoppel argument and decided that the fact that Kersfield had accepted and made payment against earlier applications which lacked substantiation did not necessarily mean that Bray was entitled to payment under a later interim application if that later application was not in the correct form. However, as the interim application was considered to be valid here, this question had no bearing on the case.

Adjudicator’s ability to “open up, revise and review”

With regards to issue 2. above Kersfield sought to argue that sections 111(8) and (9) of the Housing Grants Construction & Regeneration Act 1998 (“the Construction Act“) entitled an adjudicator to “open up, revise and review” any payment notice or pay less notice so that the Adjudicator could determine the true value of what was due.

The court rejected this argument and outlined that this could only apply where a valid payment notice or pay less notice had been served which disputed the sum due. In the absence of a payment notice/ pay less notice, there was no dispute and the value of the works was agreed. There could be no second adjudication on the true valuation of the works given that in default of any notice, it had already been agreed.

Conclusion

 The case serves as a reminder of the court’s strict approach to a failure to serve a valid payment notice or pay less notice. In the absence of a notice, any attempt by a paying party to re-open interim payment applications in a later adjudication will fail.

It is crucial to serve any notice within the prescribed timeframe or face the consequences.

A party seeking payment should ensure that the content of their applications are clear and unambiguous to avoid any scope for dispute.

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