Latest case on payment in construction contracts

Andrew Keeley

In the recent case of AM Construction Ltd v The Darul Amaan Trust [2022] EWHC 1478 (TCC), a number of interesting points arose in the context of a payment dispute between a contractor and a charitable trust concerning the construction of a new three storey mosque.

The contractor sought a declaration that an adjudicator's decision regarding the true value of the works was unenforceable, and the amount stated as due in the contractor's payment application therefore remained payable.

Service of notice

The court begun by considering whether or not the notice of adjudication had ever been sent to the contractor. Partly on the basis of video doorbell evidence, the judge decided that the notice had not been properly served. Consequently the adjudicator lacked jurisdiction. The contract permitted service by "any effective means", so even an emailed copy of the notice might have sufficed, but the employer had relied solely on personal service of the notice and the evidence suggested that the notice had not been included in the envelope by mistake.

Failure to serve a pay less notice

The contractor alternatively argued that the employer had not served a valid pay less notice. The contractor had served two potential default payment notices. The court found that the first payment notice was not valid. However, the contractor had subsequently served a second payment notice.

The court decided that the contractor's service of the first invalid default payment notice did not prevent it from later serving a valid one.

As no pay less notice had been served, the sum notified as due in the second default payment notice was payable by the employer.

Effect of non-payment on right to adjudicate

Following the Court of Appeal's decision in S&T (UK) Ltd v Grove Developments Ltd [2018] EWCA Civ 2448, we know that:

an employer who has failed to serve a payment notice or payless notice must pay the amount notified by the contractor in its payment application; and
the employer is then free to commence its own adjudication to determine the true value of the application, but only after paying the notified sum

In AM Construction Ltd v The Darul Amaan Trust, the court therefore concluded that the employer was not entitled to commence a true value adjudication until it had paid the notified sum (even if the requirement to pay the notified sum had not been formally confirmed first by an adjudicator in a "smash and grab" adjudication).

In the absence of payment, the contractor was also entitled to suspend work.

While this judgment does not create any new law, it does helpfully clarify a number of points which can arise in payment disputes and adjudications.

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