AM Construction Ltd v The Darul Amaan Trust  EWHC 1478 (TCC) is amongst a series of judgments on adjudication enforcement. Going one step further than S&T (UK) Ltd v Grove Developments Limited Mr Roger ter Haar KC (sitting as Deputy High Court Judge) cautioned against Employers commencing a “true value” adjudication to get around a failure to serve appropriate contractual notices.
The message, as always, is that if in doubt, serve the notice!
The Darul Amaan Trust (the “Employer”) engaged AM Construction Ltd (the “Contractor”) to construct a mosque in Colliers Wood, London.
The contract (which was a construction contract under the Housing Grants, Construction and Regeneration Act 1996 (the “Construction Act”)) provided for monthly payment applications by the Contractor. If the Contractor failed to make an application, and the Employer did not issue a payment notice within the relevant timeframe, the Contractor was entitled to issue a default payment notice. In March and July 2020, the Contractor issued two default payment notices (with a revised July notice purporting to replace an invalid March notice), neither of which were met with a pay less notice by the Employer.
Following a successful true value adjudication for the value of the Contractor’s works by the Employer (the “Adjudication”), the Contractor commenced proceedings to obtain a declaration that the adjudicator’s decision was unenforceable for lack of jurisdiction.
The question as to when an employer may commence a true value adjudication did not form part of Mr Roger ter Haar KC’s substantive judgement, which turned upon the proper order of steps to commence an adjudication.
Mr Roger ter Haar KC commented in passing (i.e. obiter) however upon familiar principles of payment disputes:
- Whether an employer may commence a true value adjudication when a sum is due to a contractor under s111 of the Construction Act; and
- Whether you can serve a second, revised payment notice to replace an original payment notice.
Commencing an Adjudication when a Payment is Due under s111 of the Construction Act
It is a well established principle that an employer may not commence a true value adjudication when a sum is due to a contractor under s111 of the Construction Act as a result of an adjudicator’s decision, and remains outstanding (S&T (UK) Ltd v Grove Developments Ltd; Bexheat Ltd v Essex Services Group Ltd).
Expanding on this, Mr Roger ter Haar KC’s commented that even if the adjudicator in the Adjudication had had jurisdiction to hear the dispute, the Employer was not entitled to commence a true value adjudication because the failure to make payment following the Contractor’s July 2020 default payment notice amounted to a failure to make payment for a sum that had fallen due under s111 of the Construction Act.
A strict following of this obiter comment would result in parties to a construction contract being unable to commence a true value adjudication when any sum is due under that contract, with no requirement for the status of that sum to have been confirmed by an adjudicator. This will no doubt be of particular concern to parties where the question of whether such a sum has fallen due is in itself subject to dispute – an employer may find themselves in a situation where it has successfully completed a true value adjudication on the understanding that there are no outstanding payments, only to have a decision set aside at enforcement stage on the grounds that their interpretation of a payment’s status is incorrect.
Had it not been found that the adjudicator in AM Construction Ltd lacked jurisdiction, this may well have been tested because the Employer’s position was that the July 2020 default payment notice was invalid and, accordingly, disputed the sum claimed under it was due.
Serving a Second Payment Default Notice
The Employer’s position regarding the validity of the July 2020 default payment notice reflects a conventional approach to payment notices under a construction contract: once an employer or contractor has served a notice or application relating to payment, a second revised version may not be served simply because an error is identified in the first.
Mr ter Haar KC’s view, however, was that as the March 2020 default payment notice was invalid, the Contractor was entitled to issue the July 2020 payment notice in its place, the only consequence being that payment (to the extent this was dependent upon the date of the notice) was delayed.
Such an argument is dependent upon the provisions of an individual’s contract, and indeed going forward, parties may choose to explicitly include provisions to exclude revisions to notices to minimise the risk of multiple versions being served.
As the industry copes with rising inflation and increasing costs, parties to construction contracts are now, more than ever, seeking cost effective, and quick resolutions to disputes. A rise in adjudications, often heralded as the quickest method of resolving disputes, is a natural consequence of this.
AM Construction Ltd v The Darul Amaan Trust serves as a reminder that, quick and cost effective though they may be, adjudications can have surprising results and there is no substitute for following the terms of the contract.