Court of Appeal provides further clarity on payment provisions

03 Nov 2017

Adam Architecture Limited v Halsbury Homes Ltd 2017 EWCA Civ 1735

The facts

In 2015 Adam Architecture ltd (Adam) was engaged by Halsbury Homes Ltd (Halsbury) on a development project, to construct 200 Homes in Loddon, Norfolk. Adam submitted a fee proposal in October 2015, subject to the RIBA Standard Agreement 2012 edition (SFA). This proposal was accepted and Adam undertook design work. However, on 2 December the appointment was terminated (without notice) by Halsbury. The SFA contains a term permitting either party to terminate on notice.

Following the termination, Adam submitted an invoice for work undertaken up to the date of termination. That invoice and an earlier unpaid invoice were not paid and Halsbury served no Payment Notice in response to either invoice. Adam commenced an adjudication in February 2106. In that adjudication, Halsbury alleged that there was no contract, more significantly, they argued that the Payment Notices required by the RIBA terms and the amended Construction Act only applied to interim applications for payment and not to final applications. Halsbury  relied upon Harding v Paice 2015 EWCA Civ 1231.The Adjudicator did not agree and awarded Adam the amount of their two outstanding invoices, plus interest and costs (pursuant to the RIBA contractual provisions).

Halsbury did not pay and launched a Part 8 application, relying again on the contention that Pay Less Notices were not required in relation to final accounts. Adam issued a parallel application for summary judgment, the two applications being heard together. At the hearing Edward Stuart J introduced his own interpretation of the events to the effect that the Appointment had been repudiated and that repudiation had been accepted by Adam meaning that neither party was thereafter, obliged to carry out its primary obligations including the obligation to serve any Pay Less Notice. BLM construction partner, Robert Stevenson appeared for Adam in this case and argued that as there was a clause permitting termination “at will”, the absence of any notice was a breach of contract but not a repudiation. The judge also found that the RIBA terms distinguished between interim and final applications for payment, and therefore there was no requirement to serve a Pay Less Notice in relation to the payment due on termination.

The decision

Leave to appeal was granted by the Court of Appeal, and at the hearing  last month, Justin Mort QC successfully argued that there had been no repudiation and no distinction in the Construction Act and the RIBA terms which reflected it  between interim and final applications for payment. Jackson LJ stated that in the absence of Pay Less Notice, Adam had a cast iron case to recover payment of both its outstanding invoices, and it had not accepted any repudiatory breach, merely submitted a termination account.

What this means for you

Guidance from the Court of Appeal on the interpretation of the Payment Provisions is always welcome. This case disposes of any distinction that might been felt to exist in the requirement to serve a Payment Notice between interim and final applications. Harding v Paice however, remains authority for the proposition that if the paying party fails to serve a Payment Notice in response to a final application, then the sum in question has to be paid but the payer has the right to commence his own adjudication to determine the true value of the final application.

The case also highlights that this requirement to serve a Payment Notice falls away if the contract is repudiated. Therefore, careful thought needs to be given in such a scenario whether to accept the repudiation and forgo the possibility of relying on the absence of a Payment Notice to achieve a quick result in an adjudication, or not to accept, and forgo a right to claim damages in addition for repudiation.

Robert Stevenson appeared for Adam at first instance.

Justin Mort QC appeared for Adam in the Court of Appeal.

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Disclaimer: This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to customers of BLM. Specialist legal advice should always be sought in any particular case.

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