| Date | 30 May 2001 |
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| Judgment | LPL Electrical Services Limited -v- Kershaw Mechanical Services Ltd TCC 2 February 2001 |
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| The Issue | Discussion of the importance of Payment Notices under Section 110 of the Act. |
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| Implication |
The Courts may not overturn the technical decision of adjudicators to order full payment of the amount applied for in the absence of Payment Notices. |
printThe Payment Notice required to be given under Section 110 of the Housing Grants, Construction and Regeneration Act continues to cause some difficulty. Section 110(2) requires the paying party to give a notice not later than five days after the date when the payment becomes due, specifying the amount of the payment and the basis on which the amount is calculated. Some adjudicators consider that where the paying party has failed to give this payment notice, the amount that the other party has applied for should be treated as the amount due. They will take this view whether or not the amount applied for is reasonable and without further enquiry. This view also appears to be taken whether or not the application for payment is a requirement under the terms of the contract. Other adjudicators take the view that the presence or absence of a payment notice does not detract from the requirement to determine the proper amount due under the terms of the contract. Where an application for payment has been made, that application will simply be regarded as one part of the enquiry. The courts have not yet given any clear guidance upon this difference of opinion, and since it is not the court's function to sit in appeal upon a validly given adjudicator's decision, it may be some considerable time before such guidance emerges. The Housing Grants, Construction and Regeneration Bill made no mention of a requirement for a Payment Notice. Until the very final stages of its passage through Parliament, the Bill focused upon the requirement to give a notice of withholding. The intention was that the failure of the paying party to give such a notice would mean that it would not be entitled to make a withholding against payments otherwise due. It was however correctly pointed out that if Parliament was to legislate in connection with the withholding of monies, the question would arise "withholding against what?". Thus Section 110 was added. It is now reasonably clear that the withholding notice is a necessary prerequisite to the paying party making any set-off against monies otherwise due. But in the case of Whiteways -v- Impressa Castelli, the Court stated that the absence of a Section 111 withholding notice would not prevent an adjudicator from making an "abatement" from sums claimed to reflect the true value of work carried out. Indeed, in Woods Hardwick -v- Chiltern Air Conditioning, the judge said that abatement is not a matter that is caught by Section 111 of the Act. Thus the paying party can adjust the amount due to reflect the true value of the work performed, without having issued a withholding notice. Clearly, a withholding notice will be required if the paying party intends to set-off damages or contra charges. Underpinning these observations is the fact that most construction contracts provide that payment will only be made in respect of works properly carried out. Thus the paying party does not require to issue a withholding notice, nor does it require to rely upon the general law of abatement, to pay only in respect of work properly carried out. It therefore seems illogical, unless the contract states otherwise, that the paying party should find these principles set aside simply because of its failure to issue a payment notice in due time. In LPL Electrical Services Ltd -v- Kershaw Mechanical Services Ltd, these points were considered. LPL had submitted its Application 7, which was effectively its final account application, giving a current value of work completed of approximately £346,000. Deducting the value of previous applications, the nett amount due was claimed to be approximately £49,000. Kershaw responded to this application by giving the required payment notice, reducing the amount due on the basis that LPL were to provide full costs breakdown and substantiation. LPL then submitted further details with Application 8. The gross amount claimed in Application 8 remained broadly the same as Application 7. The nett amount under Application 8 was therefore a few pounds only. Kershaw did not give a payment notice relative to Application 8. In the subsequent adjudication raised in connection with Application 8, LPL claimed the total shortfall of previous payments against that application, a sum in excess of £70,000. The adjudicator decided that the absence of the Payment Notice following Application 8, meant that Kershaw was required to pay LPL's Application 8 in full. He further held that this should be calculated as the gross amount less previous payments, and not limited to the nett amount applied for under Application 8. His Honour Judge Havery QC noted that the Court could not hear an appeal from the decision of the adjudicator and that it was not part of his function to see whether the adjudicator was right or wrong when he came to that conclusion. Nevertheless, he said, "it may be said to be a somewhat technical decision". Faced with a technical decision which could not be the subject of appeal, Kershaw was obliged to make a technical objection, namely that the adjudicator lacked jurisdiction. His decision, it was argued, should have been confined to the amount due under Application No 8 and not extended to the shortfall of previous payments in respect of earlier applications. Judge Havery rejected that contention and ordered judgment for LPL in the full amount awarded by the adjudicator.
CJ-0121
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