Construction contracts are governed by the Act and the Scheme for Construction Contracts ("the Scheme"). In the absence of a valid Payless Notice, a payee is obliged to the notified sum in the Payment/Default Payment Notice in accordance with section 111 of the Act.
Where a party is required to pay the notified sum by reason of its failure to issue a valid Payment Notice or Pay-Less Notice, such party is entitled to embark upon adjudication in respect of that sum (true value adjudication) but only after it has complied with its immediate payment obligation under section 111 of the Act.
The Court's analysis
ESG confirmed that it did not rely on a jurisdictional challenge to the Second Adjudication Decision. Its argument was that ESG was entitled to rely on and enforce the "true value" First Adjudication Decision against an application for payment, even where it had failed to deliver a Pay-Less Notice. It submitted that although the Court of Appeal has held that a paying party is prohibited from commencing a true value adjudication after it has failed to serve a valid Pay-Less notice, either party is entitled to have the true value of an application / claim adjudicated upon and decided prior to the sum falling due and prior to being debarred from such course of action due to a failure to comply with a Pay-Less notice.
The TCC held that although the First Adjudication was issued prior to the date by which the Pay-Less Notice was due or the commencement of the Second Adjudication, it was limited to the "true value" of the works in respect of Payment Application 22. Therefore, its enforcement would not be a defence to Payment Application 23. Although ESG submitted that the true value of the works in respect of Payment Application 23 would not change, the relevant period for the valuation was different, up to 31 August 2021. Further, regardless of whether the true valuation would be the same for both Payment Applications, this was not raised as a defence in the Second Adjudication. ESG's approach was tantamount to an attack on jurisdiction because it sought to rely on the binding effect of the First Adjudication Decision as displacing Mr Silver's power to direct payment of the sum awarded in the Second Adjudication Decision. The Court held that ESG was not entitled to rely on a challenge to jurisdiction in circumstances where it failed to reserve its position on this matter.
ESG's argument was also found to ignore the express stipulation in section 111 of the Act requiring a Pay-Less Notice. Having failed to issue any valid notice, the sum claimed in Payment Application 23 became the notified sum due and BHL was entitled to adjudicate on its entitlement to payment of the notified sum.
The court concluded that the Second Adjudication Decision was valid and enforceable.
This case demonstrates how a smash and grab adjudication can succeed even where there is a prior and enforceable true value adjudication concerning largely the same amount from an immediately preceding payment cycle.
Parties in the position of payer should not underestimate the significance of section 111 and its implications, namely an immediate payment obligation where they have failed to serve the requisite notices.
This case serves as a reminder to both parties to ensure that they comply with section 111 to guarantee their rights.
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