1. The TCC has recently decided a point on which there was no previous authority that a “late” application for payment cannot be considered “in accordance with the contract” under s.110B(4) of the Construction Act. Accordingly, a late application cannot operate as a default payee notice where the paying party has not served an effective payment or pay less notice.
  2. This decision is in line with the Act and the considerable line of previous TCC authority that a failure to serve effective payment or pay less notices has the draconian consequence of a paying party not having to pay any notified sum without further interrogation. In the same vein, the Court has decided the same standard applies to a receiving party and that it cannot rely on its application as a default payee notice if the application did not strictly comply with the contract. As such, the applicant has to issue a further default payee notice under section 110B.
  3. Mantle Law working with Sean Brannigan KC and Simon Hale of 4 Pump Court acted for the successful party, ISG Retail Limited in this long running dispute with its sub-contractor, FK Construction Limited.
  4. FK was employed by ISG on three separate logistics and distribution projects to provide roofing and envelope cladding works. The sub-contract allowed for interim payments to be made with each payment cycle driven by an application for payment made by FK. Importantly, the sub-contract stipulated a time by which an application for payment had to be served, namely not less than 9 days before the due date.
  5. Following a lengthy dialogue, ISG reluctantly terminated FK’s employment on a project following a failure by FK to remedy defects. FK immediately commenced several serial “smash and grab” adjudications against ISG on another project. Over the course of 8 months, FK brought adjudication proceedings in respect of six different payment cycles, seeking to recover the sums applied for in each application for payment where there was no effective payment or pay less notice from ISG.
  6. In each case, FK sought to rely on the deeming provisions of the Construction Act so that its application for payment stood as the notified sum and operated as a default payee notice. However, FK’s application had been submitted less than 9 days before the relevant due date for that cycle (8 days) and was therefore late.
  7. FK secured a decision in its favour (Shawyer) and ISG commenced Part 8 proceedings to have this point of law finally determined. The Court agreed with ISG that FK could not rely on its application as a default payee notice because it had not been “notified in accordance with the contract” as required under section 110B(4)(b). As FK had not issued a default payee notice under section 110B(2), this meant that no sum had been notified.
  8. By the time this judgment was handed down, FK had commenced several further smash and grab adjudications including two further decisions in its favour, one of which had been enforced by the Court (Wood) – FK having refused ISG’s invitation to save time and cost by awaiting the outcome of the Part 8 proceedings. The Court agreed with ISG that it was entitled to an immediate repayment as per the Supreme Court’s findings in Aspect Contracts (Asbestos) Limited -v- Higgins Construction plc [2015] UKSC 38.
  9. FK is currently seeking permission to appeal to the Court of Appeal.

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Posted by: Gurbinder Grewal

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