A further point to consider is whether the payment concerned is interim or final. If dealing with an interim payment assessment, the Courts have made clear that they will enforce an adjudicator’s decision in relation to a valid notified sum and it can’t be opened up.
This means that once a sum has become due as a ‘notified sum’ on an interim basis, that particular payment can’t be reassessed. However, where there are cumulative interim valuations (as is usually the case), the valuation can be revisited at the next interim stage. To explain, if, say, a payee submits a valid payment application no. 10 and the payer fails to issue the notices and the sum applied for is a ‘notified sum’ the payer has to pay it. However, there is nothing to prevent him reassessing the cumulative account at the next monthly interim and then adjudicating on it as it will be probably be a different dispute. However, this is not as straightforward as it first appears. The first issue is the contract itself. Some forms (such as JCT) do not permit negative interim valuation payments (that is payments from the contractor to the employer) until the final account stage. So, whilst the employer can issue a negative later certificate if he thinks there has been an overpayment in respect of an earlier one, he can’t claim it back at an interim stage.
Secondly, it has to be a ‘different dispute’; what does this mean? Well, a dispute can be ‘different’ for one of two reasons – substantively or contractually. A dispute will be substantively different if the subject matter is materially different to the previous dispute. For example, if works are progressing and the interim payments are monthly and cumulative, an interim assessment will be materially different to the one preceding it as it will contain an additional months worth of work.
A dispute will be contractually different if it arises under a different provision of your contract. Thus, a final account is different from an interim assessment – even if the substantive content is the same.
So, what if your interim application is, say, post practical completion and no works are progressing? It may be that each interim would be found to be the ‘same’. This would mean that a successful adjudication on a ‘notified sum’ basis on any such interim could not be opened up until the final account – which can potentially be an extended period of time.
A further consideration is what is the notified sum position in relation to final accounts themselves? The Act required these provisions to apply to all payments – including final accounts. So what happens if a party attempts to get paid on a notified sum basis on a final account? The problem being that there are no further assessments to open it up again.
The Courts have considered this in the recent cases of Matthew Harding (t/a M J Harding Contractors) v (1) Gary George Leslie Paice (2) Kim Springall (2015) EWCA Civ 1231 and Kilker Projects Ltd v Rob Purton (t/a Richwood Interiors) (2016) EWHC 2616 (TCC). In Harding, there was a dispute over a ‘final account’ following a contractual termination. The contractor ran a notified sum adjudication on the final account as the employer had failed to issue its payment notice and/or pay less notice. There was no issue as to the validity of the payment application or the absence of the notices. The adjudicator found for the contractor and the employer paid it. However, the employer then commenced adjudication on the substantive ‘final account’ valuation. On the face of it, this would appear to be the same position as ISG referred to above. What was also significant is that this was under the Scheme for Construction Contracts (“the Scheme”) and there is no material difference between its interim and final account payment provisions in relation to notified sums.
Therefore, it would seem that the contractor had a ‘nailed on’ defence to the employer’s claim as both adjudications seem to concern the same dispute. However, the Court made clear that it would permit the employer to adjudicate on the substantive ‘final account’ notwithstanding the previous ‘notified sum’ adjudication. It distinguished the position from ISG on the basis that the case concerned an interim assessment that would be superseded by later assessments whereas here the employer could not be permanently deprived of the right to challenge the contractor’s account valuation. Whilst difficult to reconcile with the actual wording of the Scheme, the decision does seem to make commercial sense in that interim notified sums were due and couldn’t be opened up whereas final account applications may be payable as notified sums but the employer could still dispute the actual valuation. In essence, the Court treated a dispute as to the ‘final account’ notified sum and its ‘substantive valuation’ as separate and distinct. However, as this case concerned a valuation post termination, there remained a question mark as to whether the Courts would take the same approach to more standard final account disputes.
In Kilker Projects Ltd v Rob Purton (t/a Richwood Interiors), this issue finally came before the TCC and it now seems clear that this principle will indeed be of general application. Here, there was an oral contract in respect of which the Scheme applied. A ‘final account’ application was submitted by Purton and Kilker failed to issue its notices. Purton commenced a successful ‘notified sum’ adjudication and this was (eventually) enforced by the Court. Kilker then started a second adjudication as to the ‘true’ value of the final account. Purton resisted this on the basis that this had already been decided by the previous adjudicator. It relied on the ISG case above and argued that Harding was not relevant because this was based on a termination valuation. The Court disagreed and enforced the adjudication. Mrs Justice O’Farell confirmed that whilst a notified sum due in respect of a ‘final payment’ must be paid, there was nothing to prevent either party from having the ultimate value of the contract sum determined later (unless of course the contract expressly provides otherwise). Thus, applying the Harding principle, the decision was justified on the basis that whilst a ‘final account’ notified sum has to be paid, it is not the same dispute as the actual substantive ‘final account’ valuation.
Whilst the above seems to make sense commercially (if not always contractually), it assumes of course that there is in fact a final account at the end of the payment process, which is not always the case. It remains to be seen how the Courts will treat ‘notified sum’ claims in relation to applications for payment towards the end of a project where there is no final account (NEC forms and most consultant appointments being just two examples).
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