Slides from the niceties of notices and their importance for construction claims

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www.vwv.co.uk | Offices in London, Bristol & Birmingham
Lawyers & Parliamentary Agents
The niceties of notices
Thursday 11th February 2016
Jeffrey Brown, partner
Introduction
Changes introduced by LDEDC Act 2009:
• Payment notice 110A
• Default payment notice S.110B
• Pay less notice S.111
Introduction
• ISG Construction Ltd -v- Seevic College [December 2014]
• Paice and Springall -v- Harding [Court of Appeal December 2015]
• Galliford Try Building Ltd -v- Estura Ltd [February 2015]

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Introduction
Two major problems?
(1) Difficulties in distinguishing between:
payee’s entitlement; and
the correct valuation of the payee’s work
They can be, but are not the same
(2) Also payer’s problems with recovering overpayment - a particular
problem with the current increased risk of insolvency within the
industry
Changes introduced by LDEDC Act 2009
Act defines the “Payer” ,“ Payee” and “Specified Person”
S. 110A
Payment notice - no later than five days after the payment due date
Specify the amount due and basis for calculation
Must provide the notice even if the sum due is zero
Contract to provide for the payer or the payee to give the payment
notice
S.110B
Applies where the contract provides for a payer’s notice to be given
not later than 5 days after the payment due date
If no payment notice provided by payer within this timescale, then
the unpaid party may give a default payment notice at any time after
the payer’s notice was required to be given
In this event the payee must also specify the amount due and basis
for calculation

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S.111
• Requirement is to pay the notified sum
• Payer has a right to provide notice of intention to pay less than the
notified sum Notice will state the sum the paying party considers is
due and the basis on which that sum has been calculated as of the
date that the notice was served (as opposed to the date of the
original valuation)
• To be given within the prescribed period before the final date for
payment. If none in contract Scheme states period is 7 days and
the final date for payment is 17 days from the due date for
payment
• Primary purpose of legislation is to preserve cash flow
• Payer has two opportunities to get it right
• Payment is of notified sum considered to be due less the amount
specified within the pay less notice. In such a case the balance
becomes the sum that is due.
• Sum due not defined
• 3 cases. All employer/contractor disputes, involving JCT Standard
Forms where the Employer fails to serve requisite notices.
ISG Construction Ltd v Seevic College
2015 BLR 233 (December 2014)
Edwards-Stuart J
• JCT Design and Build Contract 2011
• (Application No 13) in the sum of £1,097,696.29
• Seevic had not served a payment notice or a pay less notice
• Adjudicator (First decision) awards ISG being amount claimed in its
payment application.

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ISG Construction Ltd v Seevic College
2015 BLR 233 (December 2014)
• ISG was successful in its applications. Entitled to be paid in full the
amount awarded in the first adjudication. The Second Adjudication
was invalid and un-enforceable. The issue of ISG’s entitlement had
already been decided.
• The statutory regime would be completely undermined if the
employer, having failed to issue the necessary payment or pay less
notice, could refer to adjudication the question of the value of the
contractor’s work at the time of the interim application and then
seek a decision requiring a payment to or a repayment by the
contractor based on the difference between the value of the work
as determined by the adjudicator and the sums already paid under
the contract (see paras 28, 31-32, 47 of the judgment)
Galliford Try Building Ltd v Estura Ltd
(February 2015)
Edwards-Stuart J
Galliford Try (“GT”) applied for summary judgment to enforce an
adjudicator’s decision that Estura should pay it approximately £4
million.
GT made an interim application described as an “Indicative Final
Account and valuation summary” and after Estura failed to serve
either a payment and/or a pay-less notice, the adjudicator found that
GT became entitled to the sum stated in its application.
GT had been awarded all that it has claimed so that little incentive to
submit a final account.
Galliford Try Building Ltd v Estura Ltd
(February 2015)
• Estura could not bring a second adjudication to determine the
value of the work at the valuation date of the interim application
but there was nothing to prevent Estura from challenging the value
of the work on the next application. This view would seem to be
supported by the Court of Appeal’s decision Paice and Springall -v-
Harding (see post)

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Paice and Springall -v- Harding
Paice and Springall -v- Harding t/a M J Harding Contractors [Court of
Appeal 01.12.2015]
“I do not need to decide whether or not that passage is correct in
relation to interim valuations and interim payments. In almost all
construction contracts special contractual provisions apply to
interim payments. Mistakes can usually be put right at a later stage,
although that was not possible in Galliford because the contract
prevented negative valuations.
The important point for present purposes is that the quoted
passage (whether right or wrong in relation to interim valuations)
does not apply to final accounts. Edwards-Stuart J said so in
Galliford at [25], where he emphasised the “fundamental
difference” between payment obligations which arise on an interim
application and those that arise on termination.
In my view the employer’s failure to serve a Pay Less notice (as held
by the previous adjudicator) had limited consequences. It meant
that the employer had to pay the full amount shown on the
contractor’s account and argue about the figures later. The
employer duly paid that sum, as ordered by the previous
adjudicator. The employer is now entitled to proceed to
adjudication in order to determine the correct value of the
contractor’s claims and the employer’s counter-claims. Therefore
the judge’s decision was correct.”

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Points for discussion
1. It should come as no surprise that the courts will interpret the
timescales strictly and will not grant relief if pay less notices are
made late and out of time. But note the need at all times for
clarity.
(a) In Caledonian Modular Limited v Mar City Developments Limited
[2015]
at paragraph 37, Coulson J said:
"...if contractors want the benefit of these provisions, they are
obliged, in return, to set out their interim payment claims with proper
clarity. If the employer is to be put at risk that a failure to serve a
payless notice at the appropriate time during the payment period will
render him liable in full for the amount claimed, he must be given
reasonable notice that the payment period has been triggered in the
first place.";
(b) In Henia Investments v Beck Interiors Limited [2015] Akenhead J
said:
"...the document relied upon as an Interim Application ... must be in
substance, form and intent an Interim Application stating the sum
considered by the Contractor as due at the relevant due date and it
must be free from ambiguity. In this context, the Interim Application
should be considered in the same light as a certificate. If there are to
be potentially serious consequences flowing from it being an Interim
Application, it must be clear that it is what it purports to be so that
the parties know what to do about it and when."
Parties will implement the procedures set out in Part 8 CPR as will be
seen in the Caledonian and Henia Investments decisions. Their use
and their effect may be limited, however, to issues of law and the
proper interpretation of agreements and notices. Thus in Geoffrey
Osborne Limited -v- Atkins Rail Limited 2009 the court could hear a
challenge to an adjudicator’s decision provided the issue did not
involve a substantial dispute of fact and was one that could be finally
determined on the material before the court. This related to an
attempt to enforce an adjudicator’s decision by way of summary
judgment.

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2. It was made clear in Galliford Try and Estura that the failure to
serve a relevant pay less notice did not prevent the employer
from challenging the value of the work on the next application
even if he is contending for a figure that is lower than the
"unchallenged" amount stated in the previous application.
Reliance was made upon the decision of the Court of Appeal in
Rupert Morgan Building Services (LLC) Limited -v- Jarvis [2004
1WR1867] :
The point was mentioned but not decided in the Judgment of Jackson
L.J. in Paice and Springall
3. It was made clear in Galliford Try and Estura (see paragraph 23 of
the judgment) that this form of contract did not provide for a
negative valuation.
"The first, which is a point of general application, is that this form
of contract does not provide for a negative valuation. Although this
point was not fully argued during the hearing, I am prepared, in
principle, to accept that it is correct in the light of the wording of
clause 4.9 of the contract. Mr. Hickey pointed out that this is what
the parties signed up to and they should not be indulged if it proves
to be inconvenient."
4. In Estura, the Court relied upon the Rupert Morgan Building
Services (LLC) Limited -v- Jarvis decision as supporting the principle
that an employer could challenge the value of the work on the
next application.
This was relied upon by the Court of Appeal in Paice and Springall -v-
Harding. However in this judgment the point arose within the context
of the Final Account.

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5. There is no restriction on the parties agreeing what are to be the
due dates and thus the final dates for payment. It must be
considered good practice for these dates to be identified at the
outset given the specific importance of key dates and the timely
despatch of any pay less notice.
Payer can also insist that the contract affords it and not the payee to
deliver the payment notice.
6. It is important to consider the wording of clause 4.15.2 of the JCT
2011 Standard Form of Contract.
"The Final Certificate shall state:
• the Ascertained Final Sum as calculated in accordance with clause
4.3; and
• the sum of amounts already stated as due;
• the final payment shall be the difference (if any) between the two
sums
This same issue does not arise specifically in the NEC3 standard form.
Clause 50.1, for example, states that:-
"The Project Manager assesses the amount due at each assessment
date".
This is to suggest that each assessment is to be regarded as being a
separate process. For the avoidance of doubt, Clause 50.5 states
that:-
"The Project Manager corrects any wrongly assessed amount due in
a later payment certificate".

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7. Question the need for adjudication where payer clearly in default.
Benefits of summary judgment application. Part 24 CPR
This topic was discussed in Severfield (UK) Limited -v- Duro Felguera
UK Limited (November 2015)
“Adjudication ……………….is an effective and efficient dispute
resolution process. Far from being a “punishment”, it has been
generally regarded as a blessing by the construction industry”.
Drafting checklist
• Employer should insist on payment notice
• Parties should clearly identify within the contract what are the due
dates for payment and final dates for payment
• Main contractors to synchronise main contract dates with those of
its sub-contractors
• Include a severance clause. If one part of the contract not
compliant the whole of the Scheme should not apply.
Drafting checklist
• Allow for express right to recover overpayment
• Allow NEC type clause for determining interim valuations
• Specific amendment to 4.15.2 of JCT 2011 Standard Form
• Wide powers for a judge or arbitrator to open up, revise or review
any decision of an adjudicator
• Project Managers need to be aware and vigilant at all times

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Jeffrey Brown
Partner
jbrown@vwv.co.uk
DDI: 020 7665 0844
The Niceties of Notices
An NEC Perspective
February 2016
‘Giving priority to your commercial success’
www.gvecs.co.uk
Introduction
• The NEC is ‘hot’ on notices
• Cl. 60.1 - “The following are compensation events”
• When is a compensation event not a compensation
event?
– When the process hasn’t begun?
– When it is time barred?
• Is Cl. 61.3 complicated?
- “expect” / “believe” / “aware”
- Does the first half of the clause = the second half (time bar)?
• Do we have any case law to help us?
www.gvecs.co.uk

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NEC Clause 61.3
-The Contractor notifies the Project Manager of an event
which has happened or which he expects to happen as a
compensation event if:
– the Contractor believes that the event is a compensation event
and
– The Project Manager has not notified the event to the Contractor
-If the Contractor does not notify a compensation event
within eight weeks of becoming aware of the event, he is
not entitled to a Change in the Prices, the Completion Date
or a Key Date unless the event arises from the Project
Manager or the Supervisor issuing an instruction, issuing a
certificate, changing an earlier decision or correcting an
assumption
www.gvecs.co.uk
NEC3
• What is the NEC promoting?
– Speedy resolution of ‘claims’
– Non-adversarial approach
– Emphasis on early warning and early resolution
– Simple & speedy final accounts
• What do us consultants see happening?
– Cl. 61.3 time periods reducing
– Project Manager’s (& Contractors) not doing their bit (not issuing
instructions and compensation event notices)
– Both sides ignoring the notice provisions
– End of project reliance on Cl.61.3 time bar
www.gvecs.co.uk
Van Oord v Allseas case
• Van Oord UK Ltd v Allseas UL Ltd 2015
• Shetland Isles – gas pipeline – ground condition claim
• Contract provided for notice within 5 days of the event
• Contract also required full details within 7 further days
• Compliance was noted as a ‘condition precedent’
• Contractor failed:
• Its ground condition claim was unsuccessful
• Notice was 2 days late (very strict!)
• Notice did not refer to correct clause (very strict!)
How might this impact upon the NEC notice provisions?
www.gvecs.co.uk

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Obrascon case
• Obrascon Huarte Lain SA v Her Majesty’s Attorney
General for Gibraltar – Mr Justice Akenhead – 2014
• FIDIC Yellow Book (usually private – arbitration)
• Cl. 20.1 - Generally regarded as effective and
enforceable ‘condition precedent’ clause
• Cl. 20.1:
– “as soon as practicable, and not later than 28 days after the
Contractor became aware, or should have become aware, of the
event or circumstance”
• Judge said there was an alternative interpretation of
clause 8.4
– “is or will be delayed” AND NOT
– “is or will be delayed, whichever is the earliest”
www.gvecs.co.uk
Obrascon case
• Mr Justice Akenhead said he could “see no reason why it
should be construed strictly against the Contractor” and could “see
reason why it should be construed reasonably broadly, given its
serious effect on what could otherwise be good claims”
• The event or circumstance can mean either the event
itself or the delay (or cost) which results from the event
• What form must the notice take?
– FIDIC doesn’t require a specific form
– Must be in writing
– Must be recognisable as a notice (of a claim)
www.gvecs.co.uk
Northern Ireland case
• Northern Ireland Housing Executive v Health Buildings
(Ireland) Ltd 2014 (non-binding)
• Cl. 61.3 - 2005 version v 2013 version
• When the Project Manager (or Employer – PSC) “should
have” done something but didn’t do it!
• What did the Court say?:
– “the wording in the contract was clear”
– “even if there was an ambiguity in the wording it should be
interpreted against NIHE as it constituted a time bar which would
operate in NIHE’s favour”
– “The requirement to give notice under clause 61.3 was to be
assessed objectively”
www.gvecs.co.uk

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Conclusion
• Very limited legal commentary on NEC cl. 61.3 and its
time bar provisions
• Suspected ‘raft’ of adjudicator decisions/opinions?
• These cases would suggest the law is undecided?
- (to be strict or not to be strict?)
• My view on Cl. 61.3?
• A Contractor may lose its entitlement if it fails to strictly
comply with notice provisions (Van Oord case)
• Contractors & Sub-contractors - Issue notices!!
• A lot might depend upon:
- How the parties have dealt with one another
- How strictly they have applied the NEC procedures
www.gvecs.co.uk
ANY QUESTIONS ?
www.gvecs.co.uk

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