ISG Construction Ltd v Seevic College
ISG Construction Ltd (“ISG”) and Seevic College (“Seevic”) entered into a JCT Design and Build Contract, 2011 Edition, under which it was agreed that ISG’s interim applications for payment would be made at monthly intervals from 11 February 2013 (the date of possession). The contract also provided that disputes would be resolved finally by the courts, not in arbitration.
ISG’s interim application for payment no. 13 for £1,097,696 was for the period ending on 11 May 2014. It was received by Seevic on 13 May 2014. Seevic did not serve a payment notice or a pay less notice and failed to make any payment to ISG by the final date for payment.
The first adjudication
ISG referred the dispute over interim application no. 13 to adjudication and Mr Robert Juniper was appointed as the adjudicator. In a decision dated 5 September 2014, Mr Juniper decided that ISG was entitled to £1,097,696 plus interest.
The second adjudication
On 1 September 2014, four days before Mr Juniper made his first decision, Seevic its notice of adjudication, in which it asked the second adjudicator (also Mr Robert Juniper) to value ISG’s works as at the date of interim application no. 13, mistakenly said to be 13 May 2014. In his decision dated 10 October 2014 (and corrected under the slip rule on 13 October 2014), Mr Juniper decided the value of the works was £315,450.
Seevic did not comply with the first adjudicator’s decision and ISG started enforcement proceedings. It sought a declaration that the second adjudicator lacked jurisdiction because the matters decided in the second adjudication were the same or substantially the same as those decided in the first adjudication. It also argued that the value of the works included in interim application no. 13 had been agreed because the employer had not served any notices.
In summary, ISG successfully obtained both summary judgment in respect of the first adjudication decision and a declaratory relief on the second adjudication decision. Edwards-Stuart J held that the lack of a pay less notice meant Seevic had agreed the value of the works claimed in an interim certificate. As the first adjudicator had decided the sum claimed was the sum due to ISG (and so had decided the value of the works), the second adjudicator was asked to decide the same dispute, which meant he lacked jurisdiction.
Edward-Stuart J, in his judgment, sets out details of the applicable statutory and contractual payment mechanism, noting that there is no entitlement to payment under the contract, other than as set out in clause 4 (JCT D&B 2011). A contractor is not entitled to be paid the value of its work at “any arbitrary date during the course of the contract”. The entitlement to payment only arises either through the machinery for interim payments or the machinery applicable at the end of the project. Equally, an employer cannot seek repayment of money paid to a contractor on the ground that the true value of the contractor’s works is less that the amount stated in the application, if it has not complied with the contractual notice provisions.
The Judge referred to judgment of HHJ Humphrey Lloyd QC in Watkin Jones & Son Ltd v Lidl UK GmbH  EWHC 453 (TCC), which had very similar facts and was concerned with the payment regime under the JCT Standard Building Contract with Contractor’s Design, 1998 edition. In that case the court held that, in the absence of notices, the amount applied for had to be paid and it was not open to either party to “go back over such ground”. The subsequent adjudicator lacked jurisdiction to decide the dispute.
The Judge analysed the second notice of adjudication which stated that the dispute was the value of ISG works “under the Contract” and sought a decision as to the contractual value of ISG’s works as at 13 May 2014 (being the date of ISG’s Application No 13 was received by Seevic). Edward-Stuart J agreed with HHJ Humphrey Lloyd QC and held that since Seevic had not served any notices in response to interim application no.13, it had agreed the value stated in that application. Thus, in principle, the first adjudicator had decided the value of the work ISG had carried out for the purposes of that interim application. It followed therefore that ISG was entitled to the declaration it sought with regard to the second adjudication.
Furthermore, the court went on to consider that the meaning of dispute has been considered in the context of arbitration clauses in Hayter v Nelson and Home Insurance Company  2 Lloyd’s Rep 265, and declined to depart from the principle laid down by Saville J such that it was “no answer to a reference to arbitration that a claim is said to be indisputable so that there can be no dispute to refer to arbitration”. However, the policy of the Construction Act 1996 (which is about swift, rough machinery to enforce a party’s entitlement) is different from the policy applicable in arbitration (where the courts have limited jurisdiction to deal with matters parties have agreed will be referred to a tribunal).
Edward-Stuart stated, in obiter, that the second adjudicator could not determine the value of the works at any date other than a valuation date because the parties’ contract did not provide Seevic with a right to demand valuation of ISG’s work outside those dates. The Judge
Having commented, earlier in his judgment, that Seevic was clearly aware that it had not served the relevant notices in time and had sought to “frustrate or reduce the impact” of the first adjudicator’s decision, the Judge went on to consider the practical consequences if Seevic were right in their arguments and stated that:
- The statutory regime would be “completely undermined” if an employer that failed to serve a payment or pay less notice against an interim application could then refer to adjudication the value of that interim application (which may require a payment to the contractor or a repayment by the contractor);
- The adjudicator’s decision would, effectively, “trump” the contractor’s interim application as the contractor would be entitled to the amount determined by the adjudicator as being the value of the work properly executed (less any sums already paid);
- An employer could fail to serve a payment or pay less notice against successive interim applications, and then refer the value of those interim applications to successive adjudications. The parties would be bound to comply with the adjudicators’ decisions and could not withhold payment pending any “anticipated recovery in a future adjudication” (Interserve Industrial Services Ltd v Cleveland Bridge UK Ltd  EWHC 741 (TCC)). However, “something might have gone wrong” if how much a contractor was entitled to be paid depended solely on the order of those adjudications;
- As there is no free-standing entitlement to payment other than through the contractual payment mechanism, a contractor’s only entitlement to payment is through an interim application. Absent fraud and a payment or pay less notice, the contractor is entitled to the amount stated in the interim application, irrespective of the value of the work actually carried out; and
- Neither party could assert that the contractor’s right to payment at any particular time was a right to a sum equal to the value of the work properly executed up to that time, less sums already paid.