Sections 109-111 of the Act, interim payments & final certificates, termination & repudiation.

Neutral Citation Number: [2017] EWCA Civ 1735Case No: A1/2016/2893IN THE COURT OF APPEAL (CIVIL DIVISION)ON APPEAL FROM Queen’s Bench Division, Technology & Construction CourtMr Justice Edwards-

Between :
Adam Architecture Limited Claimant /
Appellant

and –
Halsbury Homes Limited
Defendant /
Respondent

Justin Mort QC (instructed by BLM) for the Appellant
David Sears QC (instructed by Myers Fletcher & Gordon Solicitors) for the Respondent
Hearing date: Wednesday 11th October 2017

Approved Judgment
Judgment Approved by the court for handing down. Adam Architecture Ltd v Halsbury Homes Ltd
Lord Justice Jackson :

This judgment is in seven parts, namely:
Part 1 – Introduction Paragraphs 2 – 13
Part 2 – The facts Paragraphs 14 – 26
Part 3 – The present proceedings Paragraphs 27 – 33
Part 4 – The appeal to the Court of
Appeal
Paragraphs 34 – 41
Part 5 – Ground 1: The effect of
Section 111 of the 1996 Act
Paragraphs 42 – 65
Part 6 – Ground 2: Repudiation Paragraphs 66 – 74
Part 7 – Conclusion Paragraphs 75 – 76
Part 1 – Introduction

This is an appeal by a firm of architects in litigation concerning its entitlement to
recover fees following termination of its engagement. The principal issue in this
appeal is whether Section 111 of the Housing Grants, Construction and Regeneration
Act 1996 (“the 1996 Act”) applies only to interim payments or whether it also applies
to payments due following completion of the works or termination of the contract.

Section 111 applies to every construction contract within the scope of the 1996 Act.
Therefore the question of statutory interpretation at the heart of this appeal is of wide
importance to the construction industry.

The firm of architects which is seeking to recover outstanding fees is Adam
Architecture Limited. That firm is claimant in proceedings under Part 7 of the Civil
Procedure Rules (“CPR”) to enforce an adjudicator’s award, defendant in related
proceedings brought by the employer under Part 8 of the CPR, and appellant in this
court. I shall refer to it as “Adam”.

The employer is Halsbury Homes Limited. That company is defendant in the Part 7
proceedings, claimant in the Part 8 proceedings and respondent in this court. I shall
refer to it as “Halsbury”.
Judgment Approved by the court for handing down. Adam Architecture Ltd v Halsbury Homes Ltd

Sections 109 to 111 of the 1996 Act, as amended with effect from 1st October 2011,
provide as follows:
“109.- Entitlement to stage payments.
(1) A party to a construction contract is entitled to payment by
instalments, stage payments or other periodic payments for any
work under the contract unless –
(a) it is specified in the contract that the duration of the work
is to be less than 45 days, or
(b) it is agreed between the parties that the duration of the
work is estimated to be less than 45 days.
(2) The parties are free to agree the amounts of the payments
and the intervals at which, or circumstances in which, they
become due.
(3) In the absence of such agreement, the relevant provisions of
the Scheme for Construction Contracts apply.
(4) References in the following sections to a payment include a
payment by virtue of this section.
110.- Dates for payment.
(1) Every construction contract shall –
(a) provide an adequate mechanism for determining what
payments become due under the contract, and when, and
(b) provide for a final date for payment in relation to any
sum which becomes due.
The parties are free to agree how long the period is to be
between the date on which a sum becomes due and the final
date for payment.
(1A) The requirement in subsection (1)(a) to provide an
adequate mechanism for determining what payments become
due under the contract, or when, is not satisfied where a
construction contract makes payment conditional on –
(a) the performance of obligations under another contract, or
(b) a decision by any person as to whether obligations under
another contract have been performed.
Judgment Approved by the court for handing down. Adam Architecture Ltd v Halsbury Homes Ltd
(1B) In subsection (1A)(a) and (b) the references to obligations
do not include obligations to make payments (but see section
113).
(1C) Subsection (1A) does not apply where –
(a) the construction contract is an agreement between the
parties for the carrying out of construction operations by
another person, whether under sub-contract or otherwise, and
(b) the obligations referred to in that subsection are
obligations on that other person to carry out those
operations.
(1D) The requirement in subsection (1)(a) to provide an
adequate mechanism for determining when payments become
due under the contract is not satisfied where a construction
contract provides for the date on which a payment becomes due
to be determined by reference to the giving to the person to
whom the payment is due of a notice which relates to what
payments are due under the contract.
(2) …
(3) If or to the extent that a contract does not contain such
provision as is mentioned in subsection (1), the relevant
provisions of the Scheme for Construction Contracts apply.
110A Payment notices: contractual requirements
(1) A construction contract shall, in relation to every payment
provided for by the contract-
(a) require the payer or a specified person to give a notice
complying with subsection (2) to the payee not later than
five days after the payment due date, or
(b) require the payee to give a notice complying with
subsection (3) to the payer or a specified person not later
than five days after the payment due date.
(2) A notice complies with this subsection if it specifies-
(a) in a case where the notice is given by the payer-
(i) the sum that the payer considers to be or to have
been due at the payment due date in respect of the
payment, and
(ii) the basis on which that sum is calculated;
Judgment Approved by the court for handing down. Adam Architecture Ltd v Halsbury Homes Ltd
(b) in a case where the notice is given by a specified person-
(i) the sum that the payer or the specified person
considers to be or to have been due at the payment due
date in respect of the payment, and
(ii) the basis on which that sum is calculated.
(3) A notice complies with this subsection if it specifies-
(a) the sum that the payee considers to be or to have been
due at the payment due date in respect of the payment, and
(b) the basis on which that sum is calculated.
(4) For the purposes of this section, it is immaterial that the
sum referred to in subsection (2)(a) or (b) or (3)(a) may be
zero.
(5) If or to the extent that a contract does not comply with
subsection (1), the relevant provisions of the Scheme for
Construction Contracts apply.
(6) In this and the following sections, in relation any payment
provided for by a construction contract-
“payee means the person to whom the payment is due;
“payer” means the person from whom the payment is due;
“payment due date” means the date provided for by the
contract as the date on which the payment is due;
“specified person” means a person specified in or
determined in accordance with the provisions of the contract.
110B Payments notices: payee’s notice in default of payer’s
notice
(1) This section applies in a case where, in relation to any
payment provided for by a construction contract-
(a) the contract requires the payer or a specified person to
give the payee a notice complying with section 110A(2) not
later than five days after the payment due date, but
(b) notice is not given as so required.
(2) Subject to subsection (4), the payee may give to the payer a
notice complying with section 110A(3) at any time after the
Judgment Approved by the court for handing down. Adam Architecture Ltd v Halsbury Homes Ltd
date on which the notice referred to in subsection (1)(a) was
required by the contract to be given.
(3) Where pursuant to subsection (2) the payee gives a notice
complying with section 110A(3), the final date for payment of
the sum specified in the notice shall for all purposes be
regarded as postponed by the same number of days as the
number of days after the date referred to in subsection (2) that
the notice was given.
(4) If –
(a) the contract permits or requires the payee, before the
date on which the notice referred to in subsection (1)(a) is
required by the contract to be given, to notify the payer of
a specified person of –
(i) the sum that the payee considers will become due
on the payment due date in respect of the payment, and
(ii) the basis on which that sum is calculated, and
(b) the payee gives such notification in accordance with
the contract,
that notification is to be regarded as a notice complying with
section 110A(3) given pursuant to subsection (2) (and the
payee may not give another such notice pursuant to that
subsection).
111 Requirement to pay notified sum
(1) Subject as follows, where a payment is provided for by a
construction contract, the payer must pay the notified sum (to
the extent not already paid) on or before the final date for
payment.
(2) For the purposes of this section, the “notified sum” in
relation to any payment provided for by a construction contract
means –
(a) in a case where a notice complying with section 110A(2)
has been given pursuant to and in accordance with a
requirement of the contract, the amount specified in that
notice;
(b) in a case where a notice complying with section 110A(3)
has been given pursuant to and in accordance with a
requirement of the contract, the amount specified in that
notice;
Judgment Approved by the court for handing down. Adam Architecture Ltd v Halsbury Homes Ltd
(c) in a case where a notice complying with section 110A(3)
has been given pursuant to and in accordance with section
110B(2), the amount specified in that notice.
(3) The payer of a specified person may in accordance with this
section give to the payee a notice of the payer’s intention to pay
less than the notified sum.
(4) A notice under subsection (3) must specify-
(a) the sum that the payer considers to be due on the date the
notice is served, and
(b) the basis on which that sum is calculated.
It is immaterial for the purposes of this subsection that the sum
referred to in paragraph (a) or (b) may be zero.
(5) A notice under subsection (3)-
(a) must be given not later than the prescribed period before
the final date for payment, and
(b) in a case referred to in subsection (2)(b) or (c), may not
be given before the notice by reference to which the notified
sum is determined.
(6) Where a notice is given under subsection (3), subsection (1)
applies only in respect of the sum specified pursuant to
subsection (4)(a).
(7) In subsection (5), “prescribed period” means-
(a) such period as the parties may agree, or
(b) in the absence of such agreement, the period provided by
the Scheme for Construction Contracts.
(8) Subsection (9) applied where in respect of a payment-
(a) a notice complying with section 110A(2) has been given
pursuant to and in accordance with a requirement of the
contract (and no notice under subsection (£) is given), or
(b) a notice under subsection (3) is given in accordance with
this section.
but on the matter being referred to adjudication the adjudicator
decides that more than the sum specified in the notice should be
paid.
Judgment Approved by the court for handing down. Adam Architecture Ltd v Halsbury Homes Ltd
(9) In a case where this subsection applies, the decision of the
adjudicator referred to in subsection (8) shall be construed as
requiring payment of the additional amount not later than-
(a) seven days from the date of the decision, or
(b) the date which apart from the notice would have been the
final date for payment,
whichever is the later.
(10) Subsection (1) does not apply in relation to a payment
provided for by a construction contract where-
(a) the contract provides that, if the payee becomes insolvent
the payer need not pay any sum due in respect of the
payment, and
(b) the payee has become insolvent after the prescribed
period referred to in subsection (5)(a).
(11) Subsections (2) to (5) of section 113 apply for the
purposes of subsection (10) of this section as they apply for the
purposes of that section.”

Prior to 1st October 2011, sections 109 to 111 of the 1996 Act provided as follows:
“109 Entitlement to stage payments.
(1) A party to a construction contract is entitled to payment by
instalments, stage payments or other periodic payments for any
work under the contract unless-
(a) it is specified in the contract that the duration of the work
is to be less than 45 days, or
(b) it is agreed between the parties that the duration of the
work is estimated to be less than 45 days.
(2) The parties are free to agree the amounts of the payments
and the intervals at which, or circumstances in which, they
become due.
(3) In the absence of such agreement, the relevant provisions of
the Scheme for Construction Contracts apply.
(4) References in the following sections to a payment under the
contract include a payment by virtue of this section.
110 Dates for payment.
Judgment Approved by the court for handing down. Adam Architecture Ltd v Halsbury Homes Ltd
(1) Every construction contract shall –
(a) provide an adequate mechanism for determining what
payments become due under the contract, and when, and
(b) provide for a final date for payment in relation to any
sum which becomes due.
The parties are free to agree how long the period is to be
between the date on which a sum becomes due and the final
date for payment.
(2) Every construction contract shall provide for the giving of
notice by a party not later than five days after the date on which
a payment becomes due from him under the contract, or would
have become due if-
(a) the other party had carried out his obligations under the
contract, and
(b) no set-off or abatement was permitted by reference to
any sum claimed to be due under one or more other
contracts,
specifying the amount (if any) of the payment made or
proposed to be made, and the basis on which that amount was
calculated.
(3) If or to the extent that a contract does not contact such
provision as is mentioned in subsection (1) or (2), the relevant
provisions of the Scheme for Construction Contracts apply.
111 Notice of intention to withhold payment.
(1) A party to a construction contract may not withhold
payment after the final date for payment of a sum due under the
contract unless he has given an effective notice of intention to
withhold payment.
The notice mentioned in section 110(2) may suffice as a notice
of intention to withhold payment if it complies with the
requirements of this section.
(2) To be effective such a notice must specify-
(a) the amount proposed to be withheld and the ground for
withholding the payment, or
Judgment Approved by the court for handing down. Adam Architecture Ltd v Halsbury Homes Ltd
(b) if there is more than one ground, each ground and the
amount attributable to it, and must be given not later than the
prescribed period before the final date for payment.
(3) The parties are free to agree what that prescribed period is
to be.
In the absence of such agreement, the period shall be that
provided by the Scheme for Construction Contracts.
(4) Where an effective notice of intention to withhold payment
is given, but on the matter being referred to adjudication it is
decided that the whole or part of the amount should be paid, the
decision shall be construed as requiring payment not later than-
(a) seven days from the date of the decision, or
(b) the date which apart from the notice would have been the
final date for payment,
whichever is the later.”

I shall refer to the 1996 Act in its present form as “the current version”. I shall refer to
the 1996 Act as it was before 1st October 2011 as “the old version”.

The scheme contained in the schedule to the Scheme for Construction Contracts
(England and Wales) Regulations 1998 is usually referred to as “the Scheme”. I shall
follow that convention.

I shall refer to a notice served pursuant to section 111(3) of the current version of the
1996 Act or pursuant to section 111(1) of the old version of the 1996 Act as a “pay
less” notice.

The “Conditions of Appointment for an Architect” published by the Royal Institute of
British Architects are commonly referred to as “the RIBA Conditions”. All references
to those conditions in this judgment are references to the 2012 edition, incorporating
amendments made in September 2011 and January 2012.

The RIBA Conditions include the following provisions:
“Payment notices
5.14 The Architect shall issue payment notices at the intervals
specified in the schedule of Fees and expenses.
Each notice shall comprise the Architect’s account setting out
the sum that the Architect considers to be due at the payment
due date including all accrued instalments of the fee and other
amounts due, less any amounts previously paid and stating the
basis on which that sum is calculated, which shall be “the
notified sum”. The payment due date shall be the date of the
Architect’s payment notice. Instalments of fees shall be
Judgment Approved by the court for handing down. Adam Architecture Ltd v Halsbury Homes Ltd
calculated on the Architect’s reasonable estimate of the
percentage of completion of the Services or stages or other
services or any other specified method.
The Client shall pay the notified sum within 14 days of the date
of issue of the relevant notice (which shall be the “final date for
payment”) unless:
(a) The Architect has become insolvent (as defined in the
Construction Acts at any time between the last date on which
the Client could have issued the Notice under 5.15 and the final
date for payment);
(b) The Client issues a notice under 5.15.
Otherwise the amount due and payable shall be the notified
sum. The Client shall not delay payment of any undisputed part
of the notified sum,
The Architect shall submit the final account for fees and any
other amounts due when the Architect reasonably considers the
Services have been completed.
Notice of intention to pay less
5.15 If the Client intends to pay less than the notified sum the
Client shall give a written notice to the Architect not later than
five days before the final date for payment specifying the
amount that the Client considers to be due on the date the
notice is served, the basis on which that sum is calculated and,
if any sum is intended to be withheld, the ground for doing so
or, if there is more than one ground, each ground and the
amount attributable to it. The Client shall on or before the final
date for payment make payment to the Architect of the amount
if any specified in the written notice.
If no such notice is given the amount due and payable shall be
the notified sum stated as due in the Architect’s account. The
Client shall not delay payment of any undisputed part of the
account. If the Client issues such a notice and the matter is
referred to an adjudicator who decides that an additional sum
greater than the amount stated in the notice of intention to pay
less is due, the Client shall pay that sum within seven days of
the date of the decision or the date which apart from the notice
would have been the final date for payment.
…
Payment on suspension or termination
5.17 If the Architect or the Client suspends performance of any
or all of the Services or terminates performance of the Services
Judgment Approved by the court for handing down. Adam Architecture Ltd v Halsbury Homes Ltd
and/or other obligations the Architect shall issue an account or
accounts as soon as reasonably practicable and the Architect
shall be entitled to:
5.17.1 payment of any part of the fee and other amounts
properly due to the date of the last instalment and a fair and
reasonable amount up to the date of termination or
suspension; and
5.17.2 payment of any licence fee due under clause 6; and
5.17.3 reimbursement of any loss and/or damages caused to
the Architect by reason of the suspension of the termination,
save where the Client gives notice of suspension or
termination by reason of the material or persistent breach of
the Agreement by the Architect.
…
Termination
8.2 The provisions for termination are:
8.2.1 The Client or the Architect may by giving
reasonable notice to the other terminate performance
of the Services and/or other obligations, stating the
reasons for doing so and the Services and obligations
affected.”

After these introductory remarks, I must now turn to the facts.
Part 2 – The facts

Halsbury is a property developer. Adam is an architectural practice which has worked
for Halsbury on a number of development projects.

In 2015 Halsbury was proposing to construct 200 homes on land at Loddon in
Norfolk. Adam did some preliminary work in relation to that development and
received payments.

Halsbury wished to complete the design work and invited Adam to submit a fee
proposal. On 7th October 2015 Adam duly submitted its fee proposal. Adam proposed
to divide its work and its fees into four stages as follows:
Stage 1: Site analysis and feasibility £12,750
Stage 2: Develop layout £23,125
Judgment Approved by the court for handing down. Adam Architecture Ltd v Halsbury Homes Ltd
Stage 3: Design development £66,650
Stage 4: Reserved matters planning application £53,750
Total £156,275
Adam stated that its appointment would be subject to the RIBA Conditions.

By letter dated 19th October 2015, Halsbury accepted the proposal and indicated its
preferred housing mix. Adam duly set to work on the project.

On 2nd December 2015 David Bryant of Halsbury sent the following email to Adam:
“As discussed with yourself and Jonathan approx 3 weeks ago
we are utilising both Robert Adam Architects and Vince
Douglas who is a local Architect for this scheme.
I have now agreed that we will be using his Layout for this
scheme and incorporating the various House styles that have
been drawn for this development.
We are not totally against including a dutch gable but both
Phillip and I do not like the version you have included on the 3
Bed Detached house type, it does not appear to follow the style
of that used on the Trowse development.
We want to work with you on this Development and to include
the House styles you have drawn but will utilise ASD as the
Architect who will prepare the application and with the benefit
of their in house Engineering practice will have the ability to
coordinate all of the Road and Sewer designs, Roundabout,
realignment of George Lane, Play area and other associated
technical matters.”

Mr Robert Adam of Adam responded six minutes later as follows:
“Thank you for the note. This is not quite how I understood the
relationship between ASD and ourselves was to develop. We
had discussed engineering input from ASD but the layout
design to come from us. As I have noted before, we design
places, we do not assemble house types and the design of the
layout is an essential part of that. If we have no input on the
layout then there is really no place for us in this project.”
Judgment Approved by the court for handing down. Adam Architecture Ltd v Halsbury Homes Ltd
Ten minutes after that Mr Jonathan Fox of Adam sent an email to Halsbury stating
that he had been instructed to stop work. All work duly stopped.

On 3rd December 2015 Adam sent the following letter to Halsbury:
“Following David Bryant’s notification to us on 2nd December
2015 that we are no longer to be responsible for the masterplan
at Loddon, our original scope of work is void. Our fee proposal
of 7th October 2015 provided for a full service, from Site
Analysis and Feasibility work through to preparation of
material for the Reserved Matters Planning Application. Work
was initiated under this proposal in October including the
preparation of a draft layout for discussion at the Design Team
Meeting held on 29th October 2015.
During November, we made frequent requests for input and
comment on the layout. None was forthcoming. In parallel,
given the deadline for submitting the planning application, you
asked us to progress the House Types. We had every
expectation that we would continue to work together on the
layout as confirmed in our Design Team Meeting notes dated
29th October 2015. This is clearly no longer the case.
This represents a break in our anticipated design brief and, as
we will not wish to work other than with our own layout, casts
our continued involvement into doubt. Our agreed fee is no
longer relevant and, all other matters considered, we need to
draw a line under our work to date. Our invoice is enclosed
which is due for payment by 24th December 2015.”

The invoice enclosed with that letter claimed £46,239 for work done up to 2nd
December. It was made up as follows: £12,750 for work on Stage 1; £2,313 for work
done on Stage 2; £22,220 for work done on Stage 3; £1,246.25 for work done on
proving layout; expenses £3.40.

Subsequently there was a separate agreement under which Adam did a small amount
of further work, but nothing turns on that.

Halsbury failed to serve any pay less notice. Halsbury also failed to pay Adam’s
invoice for work done up to 2nd December 2015.

Adam commenced an adjudication to recover payment of £46,239 in respect of its
December invoice and £747 in respect of an earlier invoice dated 21st October 2015.
Adam gave credit for the sum of £1,246 for reasons explained in a credit note dated
18th January 2016.

The adjudicator found in favour of Adam, essentially because Halsbury had failed to
serve any pay less notice in respect of either invoice. The adjudicator awarded
£45,490 plus interest and costs.
Judgment Approved by the court for handing down. Adam Architecture Ltd v Halsbury Homes Ltd

Invigorated after their preliminary skirmish, both parties embarked upon the present
proceedings.
Part 3 – The present proceedings

In April 2016 each party issued proceedings against the other in the Technology and
Construction Court. Halsbury issued a claim under CPR Part 8 for declarations that:
i) The pay less regime did not apply to the December invoice;
ii) Halsbury was not liable to pay that invoice;
iii) The adjudicator’s decision was unenforceable.
Adam issued proceedings under CPR Part 7 to enforce the adjudicator’s decision.

Mr Justice Edwards-Stuart, the judge in charge of the Technology and Construction
Court, held a hearing on 23rd May and 24th June 2016 to deal with Halsbury’s
application for declarations and Adam’s application for summary judgment to enforce
the adjudicator’s decision. It was obviously sensible case management to deal with
both matters at the same time.

Mr Robert Stevenson, who appeared for Adam, argued that under paragraphs 5.15 and
5.17 of the RIBA Conditions Adam was entitled to payment in full on its invoices,
since Halsbury had failed to serve any pay less notice.

Ms Jessica Stephens for Halsbury argued that the contract had come to an end by 3rd
December 2015, alternatively if still in existence the contract did not require the
service of a pay less notice in respect of the Adam’s invoice dated 3rd December 2015,
because that was a final account.

The judge handed down his reserved judgment in both actions on 27th June 2016. That
was just two months after the start of the litigation. The judge found in favour of
Halsbury. He granted declarations as sought by Halsbury and dismissed Adam’s
various claims.

I would summarise the judge’s findings and conclusions as follows:
i) Halsbury’s email to Adam dated 2nd December 2015 was a repudiation of the
contract of engagement.
ii) Adam accepted the repudiation by (a) its two emails of 2nd December, (b)
stopping work on 2nd December, (c) its letter dated 3rd December with the
invoice dated 30th November attached.
iii) Even though Halsbury did not intend to pay the invoiced sum, it was not
contractually required to serve a pay less notice, for three separate reasons:
a) The contract had been discharged, so that neither party was required to
perform its primary obligations under the contract.
Judgment Approved by the court for handing down. Adam Architecture Ltd v Halsbury Homes Ltd
b) The invoice sent on 3rd December was a final account within the
meaning of the last sentence of clause 5.14 of the RIBA Conditions,
with the consequence that the invoiced sum was not “the notified sum”
as defined in the first sentence of clause 5.14.
c) The invoice sent on 3rd December was a termination account under
clause 5.17 of the RIBA Conditions, with the consequence that the
invoiced sum was not “the notified sum” as defined in the first sentence
of clause 5.14.
iv) Accordingly Halsbury was entitled to the declaration which it sought.
v) In those circumstances, the issue upon which the adjudicator had reached his
temporarily binding decision was now finally decided.
vi) Therefore the court would not enforce the adjudicator’s decision, but would
instead dismiss Adam’s claim in the enforcement proceedings.

Adam was aggrieved by the judge’s decision. Accordingly it appealed to the Court of
Appeal.
Part 4 – The appeal to the Court of Appeal

By an appellant’s notice dated 16th July 2016, Adam appealed to the Court of Appeal
on three grounds, which I would summarise as follows:
i) Even though the contract of engagement only required pay less notices in
respect of interim applications, section 111 of the 1996 Act required pay less
notices in respect of both interim applications and any final account or
termination account.
ii) The judge erred in his decision on repudiation. Alternatively, he ought not to
have dealt with that complex issue in Part 8 proceedings.
iii) The court has not decided the dispute which was the subject of adjudication.
Therefore the court ought to have enforced the adjudicator’s decision.

Both parties instructed new counsel for the appeal. Mr Justin Mort QC now represents
Adam and Mr David Sears QC now represents Halsbury.

The appeal came on for hearing on 11th October 2017. Mr Sears took a preliminary
point that Adam should not be permitted to advance its first ground of appeal. Mr
Sears said that Adam had not relied upon section 111 of the 1996 Act below, so he
should not be permitted to do so in this court. Indeed, said Mr Sears, Adam’s advocate
had positively abandoned that line of argument in answer to a question from the
judge.

Neither counsel before this court had appeared below, so they had no personal
knowledge of what their predecessors said. Fortunately, however, there is a reliable
record of what Adam conceded. That reads as follows:
Judgment Approved by the court for handing down. Adam Architecture Ltd v Halsbury Homes Ltd
“AA specifically conceded at the outset of the hearing that it
did not seek to argue that the payment provisions of the parties’
agreement were non-compliant with the statutory payment
provisions set out in the Housing Grants, Construction and
Regeneration Act 1996 (as amended).”

Mr Mort accepts that his predecessor made that concession. He does not seek to
retract it. He said in answer to Mr Sears’ submission that he accepts that the contract
of engagement complies with the statutory requirements.

It seems to me that the true position is this. In the court below either Adam did not
rely upon section 111 of the 1996 Act, or it only did so faintly. Now Mr Mort wishes
to put section 111 at the forefront of his case. He is not, however, going back on the
concession which his client has previously made.

If this court is dealing with a dispute about payments due in relation to a construction
project, it is unrealistic for us to ignore the relevant provisions of the 1996 Act. We
must decide the dispute between the parties in accordance with the law. We would do
a disservice to the construction industry if we give a judgment which disregards the
relevant statutory provisions. All relevant facts and material are before the court. Both
counsel have produced excellent skeleton arguments. Both understand precisely the
case which they have to meet.

Having dealt with that preliminary point, I must now turn to the first ground of
appeal, which concerns the effect of section 111 of the 1996 Act.
Part 5 – Ground 1: The effect of section 111 of the 1996 Act

Mr Mort submits that section 111 of the 1996 Act applies not only to interim
payments during the course of a building project, but also to payments due under a
final account or a termination account when the building contractor or construction
professional has completed or ceased work.

Mr Sears challenges that submission. He points out that section 109 of the Act is
limited to “payment by instalments, stage payments or other periodic payments”. He
submits that sections 110 to 111 are similarly limited in their scope.

Mr Sears refers to the Latham Report and a number of textbooks, all of which make
clear that the principal objective of the 1996 Act is to maintain the cash-flow to
contractors and subcontractors during the course of a project. I accept that interim
payments are the principal target of the statutory provisions. On the other hand, as Mr
Sears concedes, none of the textbooks say that section 111 applies only to interim
payments.

Let me begin by looking at the language of the statute. Section 109 is expressly
limited to interim payments. Both the heading of section 109 and the express words of
subsection (1) make that clear. The same is not true of sections 110, 110A, 110B and

Those sections like their headings, talk about “payment”, not “interim payment”
or some synonym for interim payment.
Judgment Approved by the court for handing down. Adam Architecture Ltd v Halsbury Homes Ltd

Section 109(4) is also significant. The word “include” makes it clear that sections 110
to 111 are wider in their scope than section 109.

There is an important distinction between sections 109 to 110A on the one hand and
sections 110B to 111 on the other hand. Sections 109, 110 and 110A set out what a
contract must say. If the contract does not comply, then the relevant provisions of the
Scheme are incorporated into the offending contract. Sections 110B to 111, by
contrast, do not dictate what the contract must say. Instead those two sections set out,
in somewhat convoluted language, what the parties may or must do in certain
situations.

If I look at the language of the statute, both as it was and in the current version, it
seems to me clear that section 111 relates to all payments which are “provided for by
a construction contract”, not just interim payments. I do not think that it is permissible
to read into that perfectly sensible and workable provision words which are not there.

Let me now put down the statute and turn to the authorities cited by counsel. In
Rupert Morgan Building Services (LLC) Ltd v Jervis and another [2003] EWCA Civ
1563; [2004] 1 WLR 1867 a building contractor sought to recover payment on an
interim certificate. The employer had not served a pay less notice under section 111 of
the 1996 Act. The contractor obtained summary judgment. The Court of Appeal
upheld that decision.

Jacob LJ, with whom Schiemann LJ agreed, discussed the impact of section 111 on
both interim and final certificates. He said:
“9. The time period during which matters can be checked
before the final certificate is to be issued is much
longer than that for interim certificates. That is as one
would expect. In this case it is essentially three
months. In practice therefore a final certificate is more
likely to be accurate than an interim certificate. But
nothing actually turns on this for it is common ground
that section 111(1) applies to both interim and final
certificates.

It was the debate about a final certificate which
brought out the true nature of the provision. Suppose a
final certificate included items not done or charged for
twice and the time for serving a withholding notice has
passed. An obvious concern would arise if the
provision had the effect of not only requiring the client
to pay for such items, but was conclusive. The section
would override the contractual term specifically saying
certificates are not conclusive. But the section does not
say that failure to service a withholding notice creates
an irrebuttable presumption that the sum is in the final
analysis properly payable. It merely says the paying
party “may not withhold payment…of a sum due”.
This throws one back to the contract to find the answer
to how the sum is determined and when it is due.”
Judgment Approved by the court for handing down. Adam Architecture Ltd v Halsbury Homes Ltd

At paragraph 11 he added:
“…In the absence of a withholding notice, section 111(1)
operates to prevent the client withholding the due sum. The
contractor is entitled to the money right away. The fundamental
thing to understand is that section 111(1) is a provision about
cash-flow. It is not a provision which seeks to make any
certificate, interim or final, conclusive.”
In other words the employer must 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 can recover any amount which it has overpaid.

In Rupert Morgan the Court of Appeal was considering the old version of the 1996
Act. Mr Mort submits that the court’s observations about section 111 of the Act were
correct and they are equally applicable to the current version of the Act. Mr Sears
submits that those observations were obiter and wrong.

I am bound to say that the Court of Appeal’s analysis of the 1996 Act, as it stood in
2003, seems to me to make good sense. Also it is consistent with the adjudication
provisions. A contractor is entitled to refer issues concerning interim payments or the
final account to adjudication. The adjudicator will reach a temporarily binding
decision. The employer must pay whatever the adjudicator orders, but can argue about
it later and claw back any overpayment.

The next authority, which has been the subject of much debate in the present appeal,
is Melville Dundas Ltd (in receivership) and others v George Wimpey UK Ltd and
another [2007] UKHL 18; [2007] 1 WLR 1136. This case, like Rupert Morgan,
proceeded on the old version of the 1996 Act. Before the House of Lords both parties
accepted that section 111 of the Act applied to both interim and final certificates. Lord
Neuberger recorded that concession at paragraph 76 of his judgment and said that the
concession was well founded. No member of the House of Lords said that the
concession was not well founded.

It is on this unpromising foundation that Mr Sears seeks to build his case that section
111 applies only to interim payments. Let me therefore summarise the facts of
Melville Dundas and then seek out the ratio.

There was a building contract for the construction of a residential development in
Glasgow, dated March 2002. The contract incorporated the Standard Form JCT
Conditions 1998. This provided for monthly interim payment applications, with
payment due 14 days later unless the employer served a pay less notice 5 days before
the final date for payment (i.e. 9 days after the interim application). On 2nd May 2003
the contractor submitted an interim payment application for work done up to 30th
April. The employer did not serve a pay less notice. At the time there was no reason
to do so. Unfortunately, on 22nd May administrative receivers of the contractor were
appointed by its bank. On 30th May the employer determined the contract under
clause 27.3.4 of the conditions. The contractor claimed the sum certified as due on its
interim application, namely £396,630. The employer, relying on clause 27.6.5.1 of the
conditions, maintained that, following the determination, no further payment was due
Judgment Approved by the court for handing down. Adam Architecture Ltd v Halsbury Homes Ltd
to the contractor until there was a final reckoning after others had completed the
works.

The judge dismissed the contractor’s claim. The Inner House allowed the contractor’s
appeal. The employer appealed to the House of Lords. The House of Lords by a
majority of 3:2 allowed the employer’s appeal. The majority held that the provisions
of Part II of the 1996 Act (as it then stood) did not invalidate the effect of clause
27.6.5.1. The majority comprised Lord Hoffmann, Lord Hope and Lord Walker. Lord
Walker expressed himself to be in full agreement with the reasons given by Lord
Hoffmann for allowing the appeal. I must therefore turn to the speech of Lord
Hoffmann in my quest for the ratio of the House of Lords’ decision.

The essence of Lord Hoffmann’s reasoning was as follows:
i) If the contractor’s employment is determined in consequence of the
appointment of a receiver, then under clause 27.6.5.1 the employer has no
further liability to make interim payments to the contractor.
ii) In the present case it was not possible for the employer to serve a withholding
notice by the due date under section 111(1) of the 1996 Act (11th May 2003)
because the employer did not know about the appointment of receivers until
22nd May 2003.
iii) The law does not compel people to do that which is impossible.
iv) Therefore “section 111(1) should be construed as not applying to a lawful
ground for withholding payment of which it was in the nature of things not
possible for notice to have been given within the statutory time frame”.

Melville Dundas was, therefore, a case about interim certificates and the operation of
section 111 in relation to such certificates. It was not a case about final certificates or
termination certificates. Undaunted by this circumstance, Mr Sears argues ingeniously
that Lord Hoffmann held that section 111 does not apply to final certificates. He bases
this submission on paragraph 21 of Lord Hoffmann’s speech. That is a paragraph in
which Lord Hoffmann considers and rejects other possible solutions to the problem
before the Judicial Committee. In the course of paragraph 21 Lord Hoffmann
expresses an opinion that the concept of “final date for payment” only applies to
interim payments. That paragraph contains no discussion about the impact, or lack of
impact, of section 111 on final accounts. It does not consider Rupert Morgan or the
various arguments deployed on the present appeal. Furthermore, that paragraph is not
part of the ratio of the decision. It does not form part of the chain of reasoning which I
have summarised in paragraph 58 above.

Mr Sears is on firmer ground when he comes to the speech of Lord Hope. Although
Lord Hope does not criticise the concession or the common basis on which both
parties argued the appeal, he nevertheless indicates the view that section 111 only
applies to interim payments: see [41] – [42]. Mr Sears is correct in that submission,
but one swallow does not make a summer. Furthermore, Lord Hope’s comments
about section 111 do not form part of the ratio of the House of Lords’ decision.
Judgment Approved by the court for handing down. Adam Architecture Ltd v Halsbury Homes Ltd

Four years after that decision Parliament amended the 1996 Act in the manner set out
in Part 1 above. Section 111(10) specifically addresses the problem which arises on
insolvency, as identified by the House of Lords in Melville Dundas.

The next authority cited by counsel is Harding (trading as M.J. Harding Contractors)
v Paice and another [2015] EWCA Civ 1231; [2016] 1 WLR 4068. That case
proceeded on the current version of the 1996 Act. The claimant building contractor
sought an injunction to restrain the employer from proceeding with an adjudication to
determine the sum properly due to the contractor following termination of the
contract. The basis of the claim was that a previous adjudicator ordered the employer
to pay the full amount shown as due on the contractor’s final account pursuant to
section 111 of the 1996 Act. That was because of the employer’s failure to serve a
valid pay less notice.

Mr Justice Edwards-Stuart dismissed the claim. The contractor appealed to the Court
of Appeal, which dismissed the appeal. The court held that the employer’s failure to
serve a pay less notice meant that the employer had to pay the full amount shown on
the contractor’s account and argue about the figures later. The employer duly paid that
sum. The employer was now entitled to proceed to adjudication in order to determine
the correct value of the contractor’s claims and the employer’s counterclaims.

In Harding both parties accepted that section 111 of the Act applied to the final
certificates as well as interim certificates. By coincidence, Mr David Sears QC
appeared for the employer, as he has done in the present case. He did not seek to
argue (either in reliance on Melville Dundas or otherwise) that his client could escape
from the tentacles of section 111, because that provision only applied to interim
certificates.

Let me now draw the threads together. Section 111 of the 1996 Act applies to both
interim and final applications for payment. I reach this conclusion on the basis of the
clear words of the Act and also in the light of the authorities cited. Therefore if
Halsbury wished to resist paying Adam’s final account or termination account, then
(subject to the repudiation issue) it was obliged to serve a pay less notice. I therefore
uphold the first ground of appeal.
Part 6 – Ground 2: Repudiation

The judge held that Halsbury’s email of 2nd December 2015 was a repudiatory breach
of contract. Mr Sears submits that this was a mixed finding of fact and law, with
which the Court of Appeal should not interfere.

Mr Sears accepts that Halsbury was entitled to terminate the contract of engagement
upon reasonable notice. In answer to a question from the court, he suggested that one
month would be a reasonable period of notice. He argued that to terminate without
any notice was a breach going to the root of the contract.

Mr Mort emphasised that under clause 8.2 of the RIBA Conditions Halsbury had an
unfettered right to terminate the contract of engagement. He submitted that the mere
failure to give due notice would be a breach of contract, but not a repudiation.
Judgment Approved by the court for handing down. Adam Architecture Ltd v Halsbury Homes Ltd

On this issue I shall assume, without deciding, that Mr Sears’ submissions are correct
and that Halsbury’s email of 2nd December 2015 was a breach going to the root of the
contract.

Even making that assumption, I do not think that Adam accepted any repudiatory
breach. Adam treated the email of 2nd December 2015 as a termination of the
engagement without the appropriate notice. Hence it stopped work and notified
Halsbury that it was doing so. Adam promptly sent an invoice for all work done up to
2nd December, the date of termination. That invoice claimed payment for work done
at the contractual rates. Although the invoice was carefully drawn, it contained one
error which Adam subsequently corrected by means of a credit note. It can be seen
from the correspondence that Adam was being scrupulous to claim the sums which
were due under the contract of engagement for work actually done, but no more.
Adam’s expressions of dismay in correspondence at the turn of events does not
change the legal character of what occurred.

I regard the invoice which Adam sent to Halsbury on 3rd December 2015 as an
account following termination pursuant to clause 5.17 of the RIBA Conditions. If that
analysis is too legalistic, the invoice was simply a bill for work done to date following
Adam’s cessation of work. Either way it was a claim for money due under the
contract. It was not a claim for damages for breach of contract.

Adam had the benefit of the statutory payment regime, upon which it successfully
relied in a subsequent adjudication. I do not accept that Adam shot itself in the foot by
putting an end to the very contractual provisions upon which it was relying.

In those circumstances and in the absence of any pay less notice, Adam had a cast
iron case to recover payment on both of its outstanding invoices.

As a consequence of those findings, it is not necessary to consider the third ground of
appeal in any detail. The adjudicator’s decision was plainly correct and enforceable.
Part 7 – Conclusion

Argument in the Court of Appeal has taken a different course from that in the court
below. It is unsurprising, therefore, that I reach a different conclusion from the judge.

For the reasons set out in Parts 5 and 6 above, I would allow this appeal. I would
dismiss Halsbury’s Part 8 proceedings and give summary judgment in favour of
Adam in the Part 7 proceedings.
Lord Justice Lindblom :

I agree.
Lady Justice Thirlwall :

I also agree.

This article was originally written and published on the internet by Royal Courts of Justice on 02/11/17.

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