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Door opens to new defence over timely payment notices

An exceptional case is likely to see parties testing its implications in future disputes over payment notices.

It had been generally understood that where a party fails to serve the correct notices on time, it must pay the amount applied for and can only rectify that situation in the next application or at final account stage.

The recent case of Galliford Try Building Ltd v Estura Ltd appears to cast doubt on the court’s approach and opens up a potential defence to paying parties.

Facts of the case

Estura engaged Galliford Try to refurbish its Salcombe Harbour Hotel.

Towards the end of the project, Galliford Try served its final interim application (IA60), marked as “indicative final account and valuation summary”.

Its anticipated “final account” was £12.66m – almost £5m above the contract sum – and the IA60 itself was only £4,000 below that anticipated figure, so effectively was the final account.

Estura failed to pay or serve the relevant pay less/payment notice and, in the subsequent adjudication, was ordered to pay Galliford Try almost £3.93m.

The contract (unlike an NEC3) provided no mechanism for negative valuations and, as IA60 was the last interim application, Estura could not claw back an overpayment on IA60 in a subsequent application: it would have to wait for the final account process to run its course.

Enforcement takes surprising turn

In the inevitable enforcement proceedings that followed, the court, perhaps surprisingly, granted a stay of enforcement for the entire balance of the sum over £1.5m.

“Only rarely will the court grant a stay contrary to an adjudicator’s decision”

While seemingly at odds with the recent decision in ISG Construction v Seevic College, where the court enforced an award of £1.1m in favour of ISG after Seevic had not issued the requisite payment notices on time, the court distinguished its decision because the IA60 was the last interim application.

This was not the case in ISG, where the employer could ‘correct’ matters in future interim payments (although this in itself does not address the fact that there is no negative valuation mechanism in these types of contract).

Estura’s own precarious financial situation – accepted reluctantly by the court only after Estura had provided “sufficient and proper evidence” – was also relevant.

Upholding the adjudicator’s decision in full would have caused “irreparable prejudice” to the near-insolvent Estura.

Boundaries will now be pushed

Only rarely will the court grant a stay contrary to an adjudicator’s decision.

While the court emphasised the exceptional facts of this case, practitioners should brace themselves for the inevitable rush to test the parameters of such exceptionality.

Of course, initial compliance with the time periods to serve notices would save a lot of time and money. Now haven’t we said that somewhere before…

Steven Carey is a partner and Caroline Marshall an associate in the construction and engineering team at Charles Russell Speechlys

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