REUTERS | Tobias Schwarz

Are adjudicators applying the “new” payment regime correctly?

The post-summer holiday construction law party season is well under way. So far I’ve been lucky enough to mix with the flamingos at Kensington roof gardens and the opera goers at Covent Garden. It was at one of these events that a couple of people, I’ll call them Jack and Jill, had a bit of a moan and claimed that some adjudicators were not observing the requirements in the Construction Act 1996 regarding payment notices and pay-less notices. Given Jack and Jill’s moans and the fact that we’re almost two years into the new payment regime, I thought that it was a good opportunity to review how the new payment regime is working.

The new payment regime two years on

I know I’ve harked on about it before, but I said all along that, while some of the drafting of the amendments to section 110 and section 111 left a little to be desired, once the industry grasped the meaning of the amendments, they would be quite effective at maintaining cash flow. Up until chatting with Jack and Jill, my own experience was that was probably true. I’ve acted as adjudicator on a number of occasions where matters under the new payment regime have arisen, and both main contractors and sub-contractors are clearly learning (sometimes the hard way) the importance of the new notices.

We still haven’t had any reported  judicial scrutiny of the new payment provisions, but that isn’t to say the issue hasn’t been before the court. In my blog reviewing the first 12 months of the new payment regime, I referred to a case from February 2012 that dealt with pay-less notice issues. However, that went unreported. There was another unreported case in October 2012, and the closest we’ve got in 2013 appears to have been in Westshield Civil Engineering v Buckingham Group, where issues concerning pay-less notices were included in counsel’s skeleton arguments, but not pursued.

Jack and Jill’s problem

Jack and Jill’s problem can be summed up as follows:

On a couple of occasions when acting for sub-contractors they’ve had what they thought were rock solid claims for full payment of sums claimed due to a lack of an Act-compliant payer payment notice and/or pay-less notice. However, the adjudicators seemed to go out of their way to find that either the default payment notices were non-compliant or that the payer notices were compliant. In their view, the adjudicators appeared to be taking the merits into account when deciding whether the notices complied with the Construction Act 1996.

This appears to be the opposite of the example given by Peter Warnham in his comment on my blog last year. Peter said:

“I was recently involved in an adjudication under the 2009 Act where there were genuine and fundamental issues of defective work claimed in an application. Despite the arguments and evidence put forward there had been no payment notice or a pay-less notice and, perhaps not surprisingly, the adjudicator was having none of it and effectively awarded the full amount claimed.”

So which approach is correct?

Subject to the notices complying with the Act’s requirements, there’s no doubt in my mind that the approach Peter describes is correct. While this might seem to be a “smash and grab” method of obtaining payment (as I saw James Bowling so aptly put it recently), it is the correct application of the Act. The merits have nothing to do with it. There may be issues such as defects and delays, but adjudicators have to put such issues out of their minds, as difficult as that may be. Otherwise, uncertainty will be created and parties will be in no better position than they were under the old payment regime.

Answers on a postcard

I’d be very interested to hear of any experiences you’ve had with adjudicators dealing with the new payment regime: the good, the bad or the damn right ugly!

5 thoughts on “Are adjudicators applying the “new” payment regime correctly?

  1. Generally speaking, my experience of adjudicators applying the new payment regime has been quite positive.

    However, whilst I can understand what you’re saying about adjudicators disregarding the merits, what if this scenario arises: a referring party claims a sum as a result of a lack of a valid payless notice, as well as an alternative argument on the merits. If it’s at least arguable that the payless notice is valid and it’s obvious to the adjudicator that the whole sum claimed on the merits isn’t due, shouldn’t the adjudicator lean towards a finding that the payless notice is valid and proceed to value the works on the merits?

  2. Many thanks for your comment Derek. In my view, whether the pay-less notice is valid simply turns on whether it complies with the requirements of the Construction Act 1996.

  3. Despite a lack of any payment notice or payless notice and a valid application for payment in accordance with the contract I have just received an adjudicator’s decision saying that no sums are payable because the Referring Party still has to prove the sum is due in accordance with S L Timber – unbelievable! So many poor adjudicators it makes a mockery of the process. Might as well flip a coin!

  4. Joe – I can understand your frustration. Whilst I think that the position is clear as to a payee’s entitlement to payment of the ‘notified sum’, some judicial guidance might be helpful for parties, representatives and adjudicators alike.

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