ISG Construction Ltd v Seevic College

[2014] EWHC 4007 (TCC)

Seevic engaged ISG to carry out works on the basis of the JCT Design and Build Contract 2011. The contract requires the contractor to submit monthly interim applications for payment stating the amount the contractor considers to be due to him, and the basis on which that sum has been calculated. The final date for payment of an interim application is 14 days from its due date. The contract also contains a standard procedure requiring the employer not later than five days after the due date to serve a payment notice, stating the amount it considers to be due. If the employer intends to pay less than the sum stated in the payment notice or interim application, it must serve a pay less notice no later than five days before the final date for payment.

In accordance with the contract, ISG submitted for payment Interim Application No. 13. Seevic failed to make payment or issue either a payment notice or a pay less notice. As a result, ISG referred the dispute to adjudication (Adjudication No 1). The adjudicator found that ISG was entitled to the sum of £1,097,696.29 stated in its Interim Application No. 13 on the basis that Seevic had failed to comply with the notices procedure in the contract.

Seevic refused to pay and, instead, four days before the adjudicator’s decision in Adjudication No 1, issued a second Notice of Adjudication to determine the correct value of ISG’s works at the date of Application No 13. It was successful in obtaining a decision that the value of ISG’s works up to the date of Interim Application No 13. was less than the amount claimed by ISG.

ISG applied for summary judgment to enforce the decision made under Adjudication No 1 and for a declaration that the decision under Adjudication No 2 was invalid for want of jurisdiction. ISG argued that the value of its works at the date of Application No 13 had been agreed because, in the absence of any notices served by Seevic, the value must be taken to be that stated in the application.

Mr Justice Edwards-Stuart, compared it to the case of Watkin Jones & Sons Ltd v Lidl UK Gmbh, where the employer also failed to comply with the notice provisions under the contract and, to avoid paying the amount requested by the contractor, brought adjudication proceedings to query the value of the contractor’s application for payment. Mr Justice Edwards-Stuart agreed with the decision of Judge LLoyd QC and concluded that:

(i) Absent fraud, in the absence of a payment or pay less notice issued in time by the employer, the contractor becomes entitled to the amount stated in the interim application irrespective of the true value of the work actually carried out. The employer can defend itself by serving the notices provided for by the contractual provisions;

(ii) However, it is not open to either party to go back over such ground in order to revisit the amount of the valuation by issuing adjudication proceedings.

On that basis, Mr Justice Edwards-Stuart ruled that the question of the value of the works decided in Adjudication No 2 had been decided in Adjudication No 1 because the effect of the payment notice regime meant that there could be no dispute about the value of the work that was the subject of Application No. 13. It was the same dispute. Therefore, he allowed the enforcement of the decision in Adjudication No 1 and held that the adjudicator in Adjudication No 2 had no jurisdiction to make the decision he did.

Mr Justice Edwards-Stuart then went on to consider the consequences of allowing Seevic to demand a valuation of the contractor’s work outside the stated dates and concluded that:

“the statutory regime would be completely undermined if an employer, having failed to issue the necessary payment or pay less notice, could refer to adjudication the question of the value of the contractor’s work at the time of the interim application (or some later date) and then seek a decision requiring either a payment to the contractor or a payment by the contractor based on the difference between the value of the work as determined by the adjudicator and the sums already paid under the contract.”

This judgment reinforces the need for employers to ensure that either they or their advisors follow to the letter the requirements set out by the contract for the service of the correct notices if they disagree with the amounts sought in a contractor’s payment application

As a postscript, the Judge was asked to give guidance on what was alleged to be a practice by which the responding party serves its response to the referral later than the deadline directed by the adjudicator and, therefore, much closer to the deadline for the adjudicator’s decision. Although reluctant to do this, the Judge did agree that whilst the right to be heard was important, it was also a right to a reasonable opportunity to be heard and he repeated the words of Mr Justice Akenhead in the case of CJP Builders Ltd v William Verry Ltd (Issue 99), namely:

“It is [of] course open to any adjudicator in setting his or her procedure under Clause 38A to impose ‘unless order’ type arrangements, provided that the parties are given the right first to argue whether that is appropriate. It is sometimes said by some commentators that adjudication is or can be ‘rough justice’. There is no need to make it even rougher by construing provisions such as those contained in Clause 38A as circumscribing a party’s basic right to be heard.”

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