C O N S T R U C T I O N E M P L O Y E R S F E D E R A T I O N T H E V O I C E O F T H E I N D U S T R Y
CONOR MULLIGAN, SOLICITOR AT MILLS SELIG, DISCUSSES THE IMPLICATIONS OF A RECENT TCC COURT DECISION… Payment notices and pay less notices
Conor Mulligan, Solicitor at Mills Selig.
A s Journey’s rock anthem “Don’t Stop Believin’” echoes in the final scene of The Sopranos, the screen cuts to black and we are left without a definitive answer to the ending of one of the greatest shows ever made. This principle of “don’t stop believing”, combined with the conclusion of uncertainty, reminds us of a recent decision in the Technology and Construction Court (TCC). The court considered the subjective requirement for a valid payment notice in the case of Downs Road Development LLP v Laxmanbhai Construction, where much like Tony Soprano’s
Laxmanbhai, disgruntled and fractious about the difference in the amount applied for and the amount stated as due in the payment notice, referred the matter to adjudication and it ultimately came before the TCC, where the court assessed the validity of the payment notices. Downs conceded that its second payment notice was invalid as it was given outside of the specified timeframe under the contract. The court proceeded to declare that Downs’ first payment notice was also invalid. Both the Construction Contracts (Amendment) Act (Northern Ireland) 2011 and the relevant JCT contract require notices to set out what is “considered” due. The payment notice, crucially, did not state the amount of money Downs “genuinely believed” to be due. There were a number of reasons for this: 1 The email sent by Downs detailed that a second payment notice would follow. 2 Downs evidently anticipated the second payment notice to be of a different sum than the first. 3 It was not credible of Downs to suggest it did not realise a greater sum was due to the sum stated in the first payment notice. The court focused heavily on the email stating that a further amount would be announced, and also on the considerable difference between the two sums. We anticipate this case raising
due. Employers will also have to be cautious about alluding to any potential revision of the sum or that the sum is a holding figure until a different sum is determined. Moreover, this requirement swings both ways. Contractors ought to be aware that the same principles will apply to applications for payment as JCT and NEC standard form contracts use the same wording as payment notices and pay less notices. The case has left the door open for an increase in “smash and grab” adjudications, which are notoriously used when a payment notice, or pay less notice has been invalidly issued and the contractor seeks immediate payment of the sums due in its application. As a result, we recommend: 1 As an employer, make sure payment notices and pay less notices are thorough and issued on time. 2 As a contractor, be aware of holding sums and receiving multiple payment notices or pay less notices – you may have a basis for a “smash and grab” adjudication. 3 Both contractors and employers alike ought to be aware that the consideration of this subjective requirement will involve factual investigations which will, in turn, result in increased time and costs for an adjudication. If you have any queries in relation to the above, or any other construction matter, please contact Mills Selig.
fate, two payment notices were clouded by ambiguity. The focal point was the court’s assessment of the employer’s “genuine belief” that the amount stated on an issued payment notice, was in fact the amount due. Laxmanbhai was engaged by Downs as a contractor in the construction of four blocks of flats in East London under an amended 2011 JCT Design and Build Contract. Laxmanbhai applied for interim payment of £1,888,66.70. Soon after, Downs sent via email a payment notice outlining that £0.97 was due. The email identified that a further payment notice would be issued as they needed more time to assess Laxmanbhai’s application. A few days later, Laxmanbhai received a second payment notice of £657,218.50.
a number of issues for both contractors and employers.
There will now be an additional obligation on the employer when issuing payment notices and pay less notices to genuinely believe the amount stated is the amount
T: +44 (0)28 9024 3878 E: Conor.Mulligan@MillsSelig.com www.millsselig.com
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