If an employer wishes to pay a contractor less than the sum applied for, it must serve a valid payment or pay less notice setting out the sum considered to be due and the basis on which that sum has been calculated.
In the case of ISG v Seevic, an adjudicator decided that, in the absence of an employer’s notice, the contractor was entitled to the amount stated in its payment application regardless of the true value of that work.
When the issue came before the court, it found that the employer’s failure to serve a payment or pay less notice meant that it had agreed the contractor’s interim payment application. Further, the employer was not entitled to start a second adjudication for a true assessment of the value of the works claimed in the payment application.
The Court of Appeal has now given its decision in Harding v Paice, which relates to a similar issue but this time concerned with a post-termination final account rather than an interim application for payment.
Harding was the building contractor appointed by Paice to carry out works at two houses in Surrey. The parties fell out and both purported to terminate the contract. The contractor sent Paice his final account pursuant to the termination provisions, claiming a sum of just under £400,000.
Paice purported to serve a pay less notice against that application, but the notice did not include the basis for the employer’s calculation as to what was due and, in a subsequent adjudication, the adjudicator found that the pay less notice was invalid. In the circumstances, he ordered the employer to pay Harding the full amount applied for.
Paice commenced a further adjudication to determine the true value of the post-termination final account. The contractor objected on the basis that this question had already been decided in the earlier adjudication. However, both the judge at first instance and the Court of Appeal decided that the employer was entitled to have the question of what sum was properly due in respect of the contractor’s account determined by adjudication.
This decision might seem contrary to the decision ISG v Seevic where, in similar circumstances, the employer could not adjudicate to determine the true value of the account. However, as the Court of Appeal noted in Harding v Paice, there was a key difference between the two cases – the ISG case concerned interim payment applications, whereas Harding concerned a post-termination final account process.
The Court of Appeal made clear that the findings in ISG v Seevic do not apply to final accounts. Paice’s failure to serve a pay less notice meant that it had to pay the full sum claimed, as ordered by the adjudicator. But Paice was not deemed to have agreed the value of the contractor’s termination account and was entitled to adjudicate again in order to determine the correct value of that account.
At least in respect of final accounts, it seems that the lack of a pay less notice is not a bar to a proper determination of the amounts due between the parties.
Ben Worthington is a senior associate at Olswang