Payment Due

In the UK the employer’s failure to serve a payless notice within a short period challenging the payee’s notice can have draconian consequences. A failure to serve a notice in time will usually mean a full liability to pay.”

So said Mr Justice Coulson in a recent TCC decision [1]. He was referring back to a previous TCC decision [2] where the TCC confirmed that, if an employer fails to serve a payment or payless notice in time, then it is taken to agree the value stated in the contractor’s application, whether it was right or wrong.

It is fair to say, however, that Mr Justice Coulson is not a fan of the ‘draconian’ effect of not serving a payment or payless notice. A ‘baleful effect’ of this, he says, is that there are more and more cases before adjudicators where the claimant contractor argues that it has an automatic right to payment because the employer failed to serve its notices on time.

The Judge was clearly keen to buck the trend in this case. The contractor had served what it claimed to be an interim application for payment by email on 13 February 2015. One month later, it purported to serve a default notice in respect of the amount claimed in the email. Shortly afterwards, the employer served a payless notice.

The dispute went to adjudication, where the adjudicator found that the email of 13 February was a valid application for payment under the contract. That being so, the employer’s payless notice, which was served over a month later, was out of time. The contractor was therefore entitled to the full amount applied for in its email of 13 February. The contractor sought to enforce the award in the TCC, which is when the matter came before Mr Justice Coulson.

In what is a very unusual step, Mr Justice Coulson decided to go behind the adjudicator’s decision and examine the validity of the email of 13 February 2015 as an application for payment. Having done so, he decided that he did not think that it amounted to a valid application for payment. His reasons were:

  1. the email and the attached documents did not state that it was an interim application for payment (in fact, one of the documents had the number of the previous application on it);
  2. when the employer had asked one of the contractor’s employees what the email meant, the employee replied that he did not know;
  3. the email and documents were simply a re-hashed version of the previous application for payment. The employer had served a valid payless notice in respect of this and it was therefore not open for the contractor to reissue it; and
  4. the application was issued in the middle of the month, whereas under the contract applications were to be issued at the end of each month.

It is important to remember that this is an unusual case. Mr Justice Coulson said that 99 times out of 100, a Court would not re-examine an issue that had been already decided by an adjudicator. He was only able to do so here because the issue (the validity of the email of 13 February as an application for payment) was a simple one that did not need any further evidence. However, what is equally clear is that, given the draconian effect of not serving a payment or payless notice, the Courts (and adjudicators) will expect applications for payment to be absolutely clear as to what they are.

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[1] Caledonian Modular Limited v Mar City Developments Limited [2015] EWHC 1855 (TCC)

[2] ISG v Seevic College [2014] EWHC 4007

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.