A noticeable lack of Notices part 2: ISG Construction Ltd v Seevic College
How should work be valued where no Payment or Pay Less Notice has been provided? This week, Matthew Fletcher and William Buckenham discuss the second recent case in this three-part series to shed light on this issue.
The “Notified Sum” regime in the Local Democracy, Economic Development and Construction Act 2009 (“the Act”) has been with us for some time. But, despite much blood, sweat and tears over the same, there has been little judicial clarification of many of its more opaque points, particularly with how work should be valued where no certificate has been provided.
However, three recent cases have now cast some light on this issue:
- Harding v Paice and Springall
- ISG Construction Limited v Seevic College
- Galliford Try Building Limited v Estura Limited
ISG Construction Ltd v Seevic College  EWHC 4007 (TCC)
The second decision, also given by Edwards-Stuart J, related to an interim payment for works carried out by ISG Construction Limited (“ISG”), the contractor, for the Employer, Seevic College (“Seevic”).
The work was carried out under a JCT Design and Build Contract 2011. For the period ending 11 May 2014, ISG made an interim application for payment of the sum of £1,097,697.00.
Seevic failed to serve a Payment Notice and served their Pay Less Notice late, making it void.
Given the failure to serve a Payment or Pay Less Notice, the sum of £1,097,696.00 in ISG’s application became the Notified Sum pursuant to Sections 110 and 111 of the Act. However, Seevic refused to make payment and as such ISG referred the matter to adjudication seeking payment. The Adjudicator ordered payment of the full £1,097,696.00.
Four days before the Adjudicator reached his decision, and presumably anticipating a loss, Seevic started its own adjudication. It asked the Adjudicator to decide on the value of the works, which he determined in the sum of £315,450.00. Assuming that Seevic had already paid the amount awarded in the first adjudication, the adjudicator ordered ISG to repay the difference.
ISG then issued court proceedings seeking an Order enforcing the first adjudication and a declaration that the second adjudication was void. It stated that the second adjudication related to matters that were the same or substantially the same as the first. On that basis, the adjudicator would have no jurisdiction to consider the matter.
Edwards-Stuart J confirmed that the amount due to a Contractor under an interim application is the Notified Sum. This is determined via the contract machinery and the Payment Notice regime enshrined in the Act.
Neither the contract nor the Act grants an entitlement to an accurate valuation of the works, making it different from the entitlement with the final account (though Section 111 of the Act allows the Contractor to challenge the Employer’s valuation should it wish to).
A failure to serve a Payment Notice and/or Pay Less Notice gives rise to the Notified Sum being the amount contained in the Contractor’s interim application. Edwards-Stuart J held that a failure to serve the above notices also gives rise to an agreement as to the value of the works.
So, by not serving a Payment or Pay Less Notice, Seevic had effectively agreed with ISG’s valuation of the works. The second adjudication, being that it was also for the value of the same works, was void.
Edwards-Stuart J held that if an Employer that had failed to serve a Payment or Pay Less Notice could then refer an interim application to adjudication for a valuation, that would “completely undermine” the payment regime in the Act.
In this case, Seevic had missed its opportunity to dispute the payment to ISG. It had failed to serve the relevant Payment and/or Pay Less Notices.
Next week, we look at Galliford Try Building Limited v Estura Limited.
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