Creating Uncertainty - Avoiding the 'No Payment Notice' trap

OK, I admit it, I am a simple northern chap. I like to know where I stand on most if not all matters which impact on the industry I have chosen to work in for the last 30 years, as well, of course, as keeping the current Mrs Vinden (there will be only one) happy. So I get a little concerned when I read a judgment of the Court which appears to go against the rules set out by Parliament in the Housing Grants Construction and Regeneration Act 1996 as amended by the Local Democracy, Economic Development & Construction Act 2011, particularly when previous decided cases have set out how we are supposed to interpret this legislation. So what am I talking about? Well it is all to do with payment to a Contractor and what happens when somebody should have issued a payment notice but forgets or neglects to do so. Let me explain.
It was also pretty clear to me that subsequent interim certificates might determine that no further sum was due to a Contractor because of an earlier overpayment and that, at least in the case of JCT contracts, until the final certificate was issued, an Employer could not demand repayment of monies overpaid to a Contractor in earlier interim payment certificates. 
So you might understand my unease over the judgement in Galliford Try Building Ltd -v- Estura Ltd [2015] EWHC 412 TCC (“Galliford” and “Estura”) which appears to blow a hole in my understanding. Let me explain the background to this case so you can see what I am driving at.
Galliford contracted with Estura to build and refurbish the Salcombe Harbour Hotel in Devon under a JCT Design & Build 2011 form of contract. The works were virtually complete when Galliford issued its interim application for payment Nr 60 claiming a gross value of £12.66 million. With previous payments at £8.5 million this left £4.075 million as claimed. It is important to note that Galliford’s interim application for payment Nr 60 was effectively just £4,000 short of its projected final account. For reasons that are not clear, Estura and its appointed agent, PH Warr, failed to issue either a payer’s payment notice or pay less notice in time in response to Galliford's payment application. Yes, you’ve guessed it, the dispute ended up in adjudication with a decision that, absent a payer’s payment or pay less notice, Estura must pay Galliford the £4.075 million applied for.
Perhaps realising that it was in trouble and on the same day the decision in the first adjudication was issued, Estura commenced a second adjudication requiring the second adjudicator to decide on the merits and the actual value of Galliford’s interim application for payment with Estura. No doubt Estura intended to use the decision in the second adjudication to resist the payment due to Galliford from the first adjudicator’s decision.  
By the time the second adjudicator had been appointed the judgement in ISG Construction Ltd -v- Seevic College [2014] EWHC 4007 TCC had beenhanded down by the Court and Galliford requested the adjudicator in adjudication Nr 2 to resign on the basis that the value due to Galliford in respect of its interim application Nr 60 had already been decided and there could be no dispute. The adjudicator in adjudication Nr 2 agreed with Galliford and promptly resigned.
So now we come to the enforcement proceedings in adjudication Nr 1. Did Galliford get its £4.075 million? The short answer is no. The Court decided that Galliford should receive £1.5 million immediately with any balance effectively held over until the final certificate was determined.
It seems that the Court was swayed by the financial position of Estura, accepting that it had insufficient funds to be able to pay over the full £4.075 million and that such an order might cause Estura to become insolvent and fail. This would have been in neither party’s interests and would have caused a “manifest injustice”.
I should add that the judge regarded the circumstances in this case as very unusual, stating that “those in the industry should take note that the course I propose to adopt in this case will be appropriate in rare cases only”.
Nevertheless, it is inevitable that other parties who fail to issue the appropriate payment notices will now attempt to advance similar “manifest injustice” defences in future cases.
Those of us who advise parties on the likely outcome of adjudications concerning the failure to issue valid payment notices would be wise to keep the Galliford -v- Estura case in mind. The facts might be said to have been unusual but are they really? I confess to being left a little unsettled and uncertain and, as we all know, uncertainty rarely translates into a good thing. 
Peter Vinden

Peter is an experienced professional in the construction industry with particular expertise in quantity surveying and the commercial management of contracting organisations. 

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