In Harding v Paice and another, the Court of Appeal has held that an adjudicator’s previous decision that, because an employer failed to serve a pay less notice, he was obliged to pay the amount stated in a contractor’s final account, is no bar to the employer starting a further adjudication to determine the true value of the final account. In doing so, the court upheld Edwards-Stuart J’s judgment in Harding v Paice and another.
Background to the appeal
The contractor, Mr Harding, served a termination account following the termination of his contract with the employers, Mr Paice and Ms Springall. The account showed that the value of the works was £797,859 and that, after taking into account previous payments, the balance due was £397,912. The employers failed to serve a pay less notice in time. The contractor started an adjudication (the third between the parties) seeking a declaration that the amount properly due was £397,912 or such other sum as the adjudicator may decide.
The third adjudicator decided that:
- If the employers wished to pay less than the sum stated in the termination account, they had to issue a pay less notice.
- The employers had not issued a pay less notice in time or in proper form.
- The employers had to pay the sum stated in the account.
The employers did not pay and instead commenced a fourth adjudication in which they sought a decision that:
“…the value of the Contract Works was £340,032.60 or such other sum as the Adjudicator may decide.”
If determined in the employers’ favour, the fourth adjudication would have resulted in a net liability from the contractor to the employer.
The contractor sought an injunction restraining the fourth adjudication on the basis that the third adjudicator had already determined “the amount properly due in respect of the account”. Therefore, it was not open to the employers to re-open the issue in fresh adjudication proceedings. Edwards-Stuart J refused to grant an injunction.
On appeal, the contractor argued that the judge was wrong for two reasons:
- The fourth adjudicator did not have jurisdiction to decide the dispute because it was the “same or substantially the same” as that already decided because the third adjudicator had already decided “the amount properly due in respect of the account”. The contractor relied upon another of Edward-Stuart J’s judgments (ISG v Seevic), where he had held that, by failing to serve a pay less notice, the employer was deemed to have agreed the value of the relevant interim payment application.
- Even if the third adjudicator had not decided the amount properly due (because he had decided the dispute on the basis of the lack of a pay less notice), he had nevertheless been asked to decide that issue and had made a decision in that adjudication, thereby engaging paragraph 9(2) of the Scheme for Construction Contracts 1998, which provides that:
“An adjudicator must resign when the dispute is the same or substantially the same as one which has previously been referred to adjudication, and a decision has been taken in that adjudication.”
Court of Appeal’s decision
The Court of Appeal dealt with the latter point first. Jackson LJ said that:
“It is quite clear from the authorities that one does not look at the dispute or disputes referred to the first adjudicator in isolation. One must also look at what the first adjudicator actually decided. Ultimately it is what the first adjudicator decided, which determines how much or how little remains available for consideration by the second adjudicator.”
He held that, as a matter of construction rather than implication, the word “decision” in paragraph 9(2) means “decision in relation to that dispute”. The third adjudicator had made no decision in relation to the value of the account. The judge was therefore correct to interpret paragraph 9(2) in the way he did.
In relation to the second ground of appeal, Jackson LJ said that, on a proper analysis, the contractor had referred to the third adjudicator a dispute involving two alternative issues, one relating to the failure to serve the pay less notice (the contractual issue) and one relating to the amount properly due on the account (the valuation issue). It was clear that the third adjudicator had only dealt with the former.
Jackson LJ said it was unnecessary to embark on an analysis of ISG v Seevic and it was unnecessary to decide whether what the judge had said in that case was correct in relation to interim payments. The important point was that the passage upon which the contractor relied did not apply to final accounts.
Therefore, Jackson LJ held that an employer’s failure to serve a pay less notice 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. Here, the employers had paid the sum stated to be due. They were entitled to proceed to a new adjudication in order to determine the correct value of the contractor’s claims and their counterclaims. The judge’s decision was correct.
The Court of Appeal did not take the opportunity to analyse what the judge had said in ISG v Seevic or in Galliford Try v Estura, which was to the effect that, by failing to serve a pay less notice, an employer was “deemed to have agreed” the amount stated by the contractor to be due. If that were true in relation to interim payments, it might be thought to be difficult to see why it should not also be true in relation to termination or final accounts.
Instead, the Court of Appeal accepted (as the judge had explained in Galliford Try) that a different regime should apply in relation to final accounts because, in contrast with interim payments where an adjustment for overpayment could always be made on the next interim valuation, an employer would otherwise have no means of challenging and adjusting the amount subsequently.
One approach that the Court of Appeal might have adopted would have been to say that, while the judge was right to decide that interim applications have to be paid in full in the absence of a pay less notice, he was wrong in ISG v Seevic to say that an employer was “deemed to have agreed” the value of the contractor’s interim valuation. There was no need for the employer to have “deemed to have agreed” anything of the sort. It would have been sufficient to say simply that the contractual consequence of failing to serve a pay less notice in relation to an interim payment application was that the employer thereby became bound to pay the sum stated. If that had been all that the judge had said, then it would not have been open to the contractor to argue that the employers were to be taken to have agreed the value of the termination account and for that issue to have been finally decided.
So far as the other ground of appeal was concerned, Jackson LJ was plainly right to hold that “decision” in paragraph 9(2) of the Scheme means “decision in relation to that dispute”. It would be absurd if a contractor could refer any number of disputes or issues for a decision, obtain a decision in relation to just one and then rely upon that fact to prevent any further adjudication in relation to the others. In this case, the third adjudicator made it quite clear that he had made no decision on the merits of the contractor’s valuation. Paragraph 9(2) was clearly not intended to preclude a further adjudication in such circumstances.