Architect – Termination of contract – Pay less notice – Respondent engaging appellant to complete design and prepare documents for reserved matters planning application – Dispute arising as to responsibilities of appellant – Respondent terminating agreement – Appellant submitting account for work to date – Respondent failing to serve pay less notice – Adjudicator making award in favour of appellant – Respondent applying for declarations as to the true construction of contract – Appellant applying to enforce adjudicator’s decision – High Court finding in favour of respondent – Appellant appealing – Whether section 11 of the Housing Grants, Construction and Regeneration Act 1996 applying only to interim payments or also to payments due on completion of works or termination of contract – Appeal allowed
The respondent company was a property developer which proposed to construct 202 homes on land at Loddon, Norwich, for which it had outline planning permission. The appellant architect had done some preliminary work on the development and was invited to submit a fee proposal for completing the design and preparing documents necessary for a reserved matters planning application. The appellant submitted a revised fee proposal which was accepted by the respondent. The appellant proceeded to carry out the works.
A dispute arose concerning the responsibilities of the appellant. By email on 2 December 2015, the respondent purported to terminate a substantial part of the appellant’s services and the appellant suspended work on the development. On 3 December 2015, it submitted its account for the work done up to that date. Their agreement ended and a dispute arose about the payments due to the appellant for the work already carried out. The respondent failed to serve any pay less notice and or to pay the appellant’s invoices. The appellant commenced an adjudication to recover the sums claimed. The adjudicator found in the appellant’s favour and made an award of £45,490 plus interest and costs, essentially because the respondent had failed to serve any pay less notice in respect of either invoice.
The respondent brought proceedings under CPR Part 8 for declarations that the pay less regime did not apply to the December invoice, the respondent was not liable to pay that invoice and the adjudicator’s decision was unenforceable. The appellant issued proceedings under CPR Part 7 to enforce the adjudicator’s award. The judge granted the declarations as sought by the respondent and dismissed the appellant’s claims: [2016] EWHC 1422 (TCC); [2016] PLSCS 256.
The appellant appealed contending, among other things, that even though the contract of engagement only required pay less notices in respect of interim applications, section 11 of the Housing Grants, Construction and Regeneration Act 1996 required pay less notices in respect of both interim applications and any final account or termination account. The respondent argued that section 109 of the 1996 Act was limited to “payments by instalments, stage payments or other periodic payments” and that sections 110 and 111 were similarly limited.
Held: The appeal was allowed.
(1) The word “include” in section 109(4) of the 1996 Act made it clear that sections 110 to 111 were wider in their scope than section 109. There was an important distinction between sections 109 to 110A on the one hand and sections 110B to 111 on the other. Sections 109, 110 and 110A set out what a contract had to say. If the contract did not comply, then the relevant provisions of the scheme were incorporated into the offending contract. Sections 110B to 111, by contrast, set out what the parties might or had to do in certain situations. Section 111 related to all payments which were provided for by a construction contract, not just interim payments. It was not permissible to read into that sensible and workable provision words which were not there.
The employer had to pay the sum stated to be due and argue about it afterwards. After any subsequent arbitration, litigation, mediation or other dispute resolution procedure, the employer could recover any amount which it had overpaid. That was consistent with the adjudication provisions. A contractor was entitled to refer issues concerning interim payments or the final account to adjudication. The adjudicator would reach a temporarily binding decision. The employer had to pay whatever the adjudicator ordered but could argue about it later and claw back any overpayment. On the basis of the clear words of the Act and in the light of the authorities cited, section 111 of the 1996 Act applied to both interim and final applications for payment. Therefore, if the respondent wished to resist paying the appellant’s final account or termination account, it was obliged to serve a pay less notice: Rupert Morgan Building Services (LLC) Ltd v Jervis [2003] EWCA Civ 1563; [2003] PLSCS 257 followed. Melville Dundas Ltd (in receivership) v George Wimpey UK Ltd [2007] UKHL 18; [2007] PLSCS 84 and Harding (trading as MJ Harding Contractors) v Paice [2015] EWCA Civ 1231; [2015] PLSCS 342 considered.
(2) Assuming, without deciding, that the respondent’s email of 2 December 2015 was a breach going to the root of the contract, the appellant had not accepted any repudiatory breach. It treated the email as a termination of the engagement without the appropriate notice. Hence it stopped work and notified the respondent that it was doing so. It could be seen from the correspondence that the appellant was being scrupulous to claim only the sums due under the contract of engagement for work actually done. The appellant’s expressions of dismay in correspondence at the turn of events did not change the legal character of what occurred. In those circumstances and in the absence of any pay less notice, the appellant had a cast iron case to recover payment on both of its outstanding invoices.
Justin Mort QC (instructed by BLM LLP) appeared for the appellant; David Sears QC (instructed by Myers Fletcher & Gordon, of Hammersmith) appeared for the respondent.
Eileen O’Grady, barrister
To read a transcript of Adam Architecture Ltd v Halsbury Homes Ltd, click here
