Show me the money! The importance of issuing valid payment notices and pay less notices on time

Print publication

12/01/2018

Actavo UK Limited v Doosan Babcock Limited [2017] EWHC 2849 (TCC)

The judgment of O’Farrell J in Actavo UK Limited v Doosan Babcock Limited [2017] EWHC 2849 (TCC) has provided a timely reminder of the importance for paying parties to issue a valid payment notice or pay less notice or otherwise risk the consequences of the sums applied for becoming automatically due. This judgment also confirms the court’s strict approach to the enforcement of adjudicators’ decisions. Such decisions will automatically be enforced irrespective of errors of law or fact (except for in very limited circumstances).

Background

The claimant, Actavo UK Ltd (Actavo) was employed by the defendant, Doosan Babcock Ltd (Doosan) as a subcontractor to undertake scaffolding, pipe, steel and painting works for an original contract price of £367,457.29.

Following the issue of an interim application for payment by Actavo for £630,629.99, Doosan failed to issue a valid payment notice or valid pay less notice. This resulted in Actavo issuing an adjudication for payment (the First Adjudication). The First adjudicator decided that Doosan should pay the applied sum of £630,629.99 to Actavo, and that the interest provisions of the Late Payment of Commercial Debts (Interest) Act 1998 (the Interest Act) should apply.

Doosan failed to make payment of the determined sums leading Actavo to issue enforcement proceedings.

However, whilst those proceedings were ongoing, Doosan issued a second adjudication to decide the true value of the final account (the Second Adjudication). The Second adjudicator decided that the value of the final account was £586,674.93, but as Doosan had already paid £526,199.59, the sum that Doosan was required to pay to Actavo was £60,475.34.

Subsequently (2 days before the enforcement hearing), Doosan filed an amended defence setting out that:

  • the First adjudicator had erred in his decision by applying the provisions of the Interest Act;
  • the award given in the First Adjudication should be reduced as a result of the decision on the final account in the Second Adjudication i.e. it should be set off.

Decision

In reaching a conclusion as to enforcement, the court considered the following two points which arose out of Doosan’s amended defence:

1 – In what circumstances can the court open up and consider matters already decided by an adjudicator?

On consideration of the interest argument raised by Doosan, Justice O’Farrell considered to what extent the courts were able to open up and consider an adjudicator’s decision, if for example, there was an error of fact and/or law i.e. the applicability of the Interest Act.

The court’s normal approach is that an adjudicator’s decision will automatically be enforced by the courts even if the adjudicator has made an error of fact and/or law.

However, applying the guidance of Hutton Construction v Wilson Properties Limited [2017] EWHC 517 (TCC), the court did consider that there were some limited circumstances where an adjudicator’s decision could be opened up and departed from – where the issue is:

  • a short and self-contained issue which arose in the adjudication and which the defendant continues to contest;
  • one that requires no oral evidence or any other additional elaboration; and
  • one which would be unconscionable for the court to ignore.

Here, the court considered that the issue of interest did not satisfy those requirements as the issue could not be resolved simply by reference to documents before the courts. As such, the decision was enforceable and Doosan were obliged to pay the sum decided in the First Adjudication.

2 – When can one adjudicator’s decision be set off against another?

Turning to the feasibility of set off of the adjudicator’s decisions, O’Farrell J (following the principles laid out in HS Works Limited v Enterprise Manage Services Limited [2009] EWHC 729) concluded that where both decisions are valid and enforceable: then both decisions should be enforced by the courts, and could be set off against each other (such that Doosan was only required to make payment of the lower sum of £60,475.34).

In considering this set off, questions were raised as to whether the decision in the Second Adjudication was valid given that the decision had been issued 2 days after the intended decision date.

Under the Scheme for Construction Contracts 1998 (which governed this adjudication) (paragraph 19), the deadline for the adjudicator’s decision can be extended by 14 days with only the Referring Party’s consent, or indefinitely with both parties’ consent; but if, a decision is issued late, without an extension, it is invalid.

The parties in this case were in dispute as to whether there had in fact been an agreement to an extension of time at a meeting between the parties, so in this instance, it could not be said with certainty whether there had been an agreement and thereby whether the decision was valid. The court concluded it was not in a position to determine this element within the forum of a short enforcement hearing because (applying the Hutton guidelines set out above)  the point could not be decided without oral evidence and cross examination of the attendees of the meeting where the agreement was alleged to have taken place.

Practical Points

Whilst this case serves as a useful reminder to record extension agreements in writing (to avoid such disputes arising), the primary point to take away is that a failure to issue a valid payment notice or pay less notice will lead to the amount applied for becoming automatically due. In addition this case confirms that the court will automatically enforce an adjudicator’s decision irrespective of errors of law and/or fact, except for in very limited circumstances.

Contacts