Quigg Golden were recently instructed to commence a “smash and grab” adjudication on behalf of a Enisca Limited (“Enisca”), seeking c. £2.7m as the “notified sum”.
Shortly before receipt of the Adjudicator’s Decision in favour of Enisca, the Responding Party, Advance JV (“Advance”) commenced Part 8 Proceedings, seeking to avoid enforcement. Quigg Golden were again instructed by Enisca to represent it in the Part 8 Proceedings.
On Monday 16 May, the Technology and Construction Court (“TCC”) handed down its judgment which dismissed the Part 8 claim, thereby enforcing the Adjudicator’s Decision and once again highlighting how “smash and grab” adjudications remain an important weapon in any contractor’s armoury.
The Parties and the Contract
Advance engaged Enisca to design, supply and install the LV electrical installation for a waste-water treatment plant in Cumbria.
The contract between Advance and Enisca was an amended NEC3 Engineering and Construction Sub-Contract using Option A (“the Sub-Contract”).
The payment provisions of the Sub-Contract set out that:
As is standard, to be deemed valid, any such pay-less notice was required to state both:
The dispute concerned Enisca’s Interim Application for Payment #24 (“AFP24”), which was submitted on 22 October 2021 and sought payment of the net sum of £2,717,992.88.
Advance did not provide Enisca with a payment certificate or other form of response in respect of AFP24. However, in response to Enisca’s interim Application for Payment #25 (“AFP25”) that was submitted on 19 November 2021, Advance issued a payment certificate enclosing a pay less notice on 25 November 2021 (“the Pay Less Notice”).
Importantly the payment certificate and the Pay Less Notice both made specific reference to AFP25.
It was Enisca’s position that:
Whereas Advance contended that the Pay Less Notice was a valid response to both AFP24 and AFP25 because the Pay Less Notice:
Enisca referred the dispute to Adjudication in early January 2022. Enisca pleaded that the Pay Less Notice issued against AFP25 could not also be deemed as a valid pay less notice in response to AFP24 and therefore the full sum claimed due in full.
The Adjudicator decided in Enisca’s favour, that:
The Adjudicator ordered Advance to pay the notified sum of £2,717,992.88 to Enisca within 7 days, along with interest and costs associated with the appointment of the Adjudicator.
The TCC Judgement
During the Adjudication, Advance commenced a Part 8 claim against Enisca seeking declaratory relief concerning the validity of the Pay Less Notice. The proceedings were combined with Enisca’s enforcement proceedings and the matter was heard on 03 May 2022 by Mrs Justice Joanna Smith. In the Court proceedings, Advance were represented by Mr Piers Stanfield QC, instructed by Pinsent Masons LLP, and Enisca were represented by Mr Alexander Nissen QC, instructed by Quigg Golden.
Enisca’s position was that it was the “backbone” of the relevant legislative provisions that payment cycles exist which create due dates and final payment dates, and that payment notices or pay less notices must be issued in relation to the applicable payment application within a given payment cycle, and not subsequent payment cycles. Mr Nissen also successfully argued that provision is made within the Housing Grants, Construction and Regeneration Act (“the HGCRA”) for notices to be given within each specific cycles, and that pay less notices must be referable to the relevant notice.
Ms Smith identified that:
“while there is no absolute requirement for a pay less notice to make express reference to the notice to which it is responding, it must nevertheless be clear that it is in fact responding to that particular notice”.
Advance’s “novel” Position
Mr Stansfield, on behalf of Advance, argued that there was no requirement in the Act or anywhere else for pay less notices to be referable to a particular cycle. While he did not contend that Section 110(B)(4) of the Act requires payment notices to be referable to the due date in the relevant payment cycle, he did contend that the Act deals with pay less notices in a different manner. In particular, Mr Stansfield put forward that Section 111(4)(a) merely requires a pay less notice to identify the sum that the payer considers to be due “on the date the notice is served”, indicating that the Act is concerned only with time limits for pay less notices.
Advance argued that that there was nothing in the HGCRA or the Sub-Contract which precluded a pay less notice from responding to two applications. The Court described this as a “novel” proposition, for which “no support can be found in the Act or the Contract”. The Court continued:
“It is difficult to see how one notice referable to only one assessment date could possibly be said to be responsive to two applications for payment”.
The Court’s Judgment
The Court agreed with Enisca and endorsed the Decision of the Adjudicator, stating that while Advance’s argument had initially been attractive, and that they accepted that a pay less notice need only identify the sum that the payer continues to be due for payment on the date the notice is served, crucially it must also be referable to the payment application in which the specific notified sum is identified.
Accordingly, it was held that the Pay Less Notice issued by Advance on 25 November 2021 was a valid pay less notice for AFP25, but not AFP24.
The Court therefore dismissed the Part 8 Claim.
Key Take-Aways from this Case for Clients to be Aware of
The primary take-away from this judgement is that pay less notices must be referable to (1) a particular payment notice and (2) relate to that particular payment cycle.
The second is that technical (“smash and grab”) adjudications continue to bite and will be upheld by the Courts.
Quigg Golden, Experts in Adjudication
Quigg Golden were delighted to represent Enisca in both the successful adjudication and the subsequent (conjoined) Part 8 / enforcement proceedings.
The case further highlights the importance of issuing valid payment certificates and pay less notices.
Should you the find yourself in a similar technical payment dispute, please contact us, as we offer a broad range of legal services and are highly experienced in alternative dispute resolution, including adjudication, and litigation.