Defences to no payment notice / pay less arguments.
I’ve been involved in adjudication since its inception, at the start both preparing adjudication Referrals and Responses and latterly acting as an Adjudicator. Below are some of my thoughts on adjudication.
So we know that disputes over payment notices and pay less notices are common. What is not so well known is that if you are defending an adjudication, and you have not served the requisite payment notice or pay less notice, there are legitimate defences you can use.
A defence as to over-claiming by the Referring Party, does not need a payment notice or pay less notice. The Responding Party can still defend itself by claiming that the sum applied for was over claimed in the first place.
This is a statement of what we used to call ‘abatement’.
Coulson on Construction Adjudication. Fourth Edition [2018] at section 9.11 states:-
9.11. if no certificates, no withholding notice needed to argue elements of application were not due under the contract.
This reference is to withholding notices under the original Construction Act, but there is no reason this principle is different under the amended Construction Act.
In Windglass Windows Ltd v (1) Capital Skyline Construction Ltd and another. [2009] EWHC 2022 TCC.
In this case, it was held that:-
A defendant in an adjudication cannot rely on a cross-claim which has not been the subject of a withholding notice.
The contract did not provide an adequate mechanism for determining either what interim payments became due under the contract or when they became due for payment. Accordingly, the mechanism set out in the Scheme for Construction Contracts (the “Scheme”) was implied into the contract between the parties.
The adjudicator also found that Capital had failed to issue any effective notices of payment and/or withholding notices under the scheme, so Capital was not entitled to raise any set-off or cross claim either for defects or delay.
In the present case, there were no notices under s.110. However, the parties had agreed that, in accordance with Rupert Morgan Building Services v Jervis [2004] 1 WLR 1867, the absence of a s.110 notice did not, without more, entitle Windglass to the sums claimed in their interim applications. Those sums could still be adjusted, if appropriate, to reflect the true value of the work done and the materials supplied.
The adjudicator decided that: (a) Effective withholding notices were needed if the sums otherwise due by way of interim payment were to be reduced or not paid at all by reason of cross-claim for defects and delay; (b) There were no such withholding notices; (c) The cross-claim for defects and delay could not be raised as a defence to the claim for interim payments in the absence of valid withholding notices.
A defendant can raise whatever matters he likes by way of defence for the adjudicator to consider, but that general principle does not permit a defendant to rely on a cross-claim which should have been the subject of a withholding notice but was not. A defendant cannot avoid the absence of a valid withholding notice if, by reference to the contract and on the facts of the particular dispute, the raising of the cross-claim in question required such a notice. To hold otherwise would be to obviate the need for withholding notices at all.
So, if you disagree with the contractor’s application, and the amount due is not independently certified, then you may have an argument that notwithstanding that you have not served a payment notice or pay less notice in time, the contractor has over-valued its works and the value should be reduced. Of course if you have any separate claims against the contractor e.g. delays etc, these shoudl have been part of your payment notice or pay less notice.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.
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