Projects & Construction Law Update - November 2017

Please find below Clyde & Co's latest projects and construction law update from November 2017

CASES

Does s. 111 of the Construction Act apply to both interim and final payment applications?

Adam Architecture Ltd v Halsbury Homes Ltd [2017] EWCA Civ 1735

While some may have considered this point already decided, the recent case of Adam Architecture v Halsbury Homes should leave no doubt in anyone's mind that section 111 of the Housing Grants, Construction and Regeneration Act 1996 (the Act), which deals with the requirement to pay the notified sum and the issue of pay less notices, applies to both interim and final payments. Unfortunately for Halsbury, this was not the outcome it was hoping for.

Halsbury Homes Ltd (Halsbury) engaged Adam Architecture Ltd (Adam) to provide the design work on a project to build 200 homes. The contract between Adam and Halsbury incorporated the RIBA Conditions of Appointment and the wording in relation to Payment Notices was very similar to that included in the Act.

Adam began work in relation to the project, but around six weeks it became apparent that the parties had very different views about how the services would be delivered. After this issue was raised by Adam, Halsbury instructed it to cease work and Adam subsequently invoiced Halsbury for the services it had provided to that date. Halsbury failed to issue any payment or pay less notice in response and Adam launched an adjudication claiming the entirety of its invoice. The adjudicator found in Adam's favour.

Halsbury took the matter to the TCC who refused enforcement on the basis that the contract had come to an end (i.e. Halsbury had repudiated the contract and Adam had accepted the repudiation). As the contract had been discharged, neither party was required to perform its primary obligations. This included Halsbury's obligation to serve a pay less notice under the contractual payment mechanism. Additionally, the TCC took the view that Adam's invoice represented a final account or a termination account, such that the invoiced sum was not the 'notified sum' for the purposes of the contract.

Adam appealed this decision to the Court of Appeal on the basis that even though the contract only required a pay less notice in respect of interim applications, s. 111 of the Act required it in relation to both interim and final applications. Briefly, s. 111 of the Act sets out a paying party's obligation to pay the relevant notified sum, unless it has issued a pay less notice in accordance with the section. Halsbury argued that s.111 of the Act only applied to interim payments. The Court of Appeal gave Halsbury's argument short shrift pointing to the clear wording of the Act and the line of case authority that s.111 of the Act applies to both interim and final payments. Considering the language of the Act, Jackson LJ stated that 'it seems to me clear...