As many sub-contractors are increasingly aware, for a main contractor to legally withhold funds they must first issue a valid payer or pay less notice. Without this, an Adjudicator will almost always side with the sub-contractor and rule that full and final payment must be made.
What happens if the main contractor disagrees with the amount specified in the application? If a ruling has already been made, can they commence a second adjudication and either continue to withhold payment, or at least reclaim some of the funds already paid?
This was the situation facing Harding, a contractor engaged by Paice, under a JCT Intermediate Form of Building Contract 2011, to carry out the construction and fit-out of three residential houses. In line with the agreed contract, Harding had served a notice of termination and were therefore entitled to submit an account for the value of the work carried out. However, Paice refused to pay the outstanding amount of nearly £400K and argued that a valid pay less notice had been issued.
The fact that the Adjudicator sided with the sub-contractor isn’t unusual in these circumstances, but the reasoning certainly was. Despite the lack of case law on the subject, the Adjudicator decided that the pay less notice was invalid simply because Paice had failed to set out how the sums within it were calculated.
How did Paice react? In an apparent attempt to evade the Adjudicator’s decision, they launched a new adjudication relating to the actual value of work undertaken. And, although Harding argued that the dispute had already been settled, the judge ruled that they were only entitled to “the amount properly due in respect of the account.
In reality, the amount due was never actually considered in the original adjudication, and so Paice would need to pay Harding the sum originally awarded and then hope for reimbursement after the second adjudication. Whilst it could certainly be argued that the final ruling was fair and equitable for both parties, it’s also worth remembering that the issue of the funds “properly due” would not have been considered at all if there had been no payment or pay less notice served.