Fast recovery of money in construction contracts
In November 2011 I uploaded a power point presentation that I had presented to clients concerning the key changes that had been made in 2009 legislation amending the Construction Act. To read these slides please follow this link
I was in 2011 of the opinion that the most significant change was the consequences where a party failed to respond to a Default Payment Notice; in such situation the amount claimed was the amount due – no argument, no defence, it had to be paid.
In 2013 I wrote about having just completed an adjudication based on this new law. No response to a Default Payment Notice had been given and Responding Party simply paid all of what we requested within the adjudication – no argument, no defence, it had to be paid. To read this post follow this link.
The law on this point really was in our opinion quite straightforward. In the right circumstances the changes to the Construction Act could be used to gain maximum advantage – secure full payment on what was basically a technicality. There was no need to request a valuation of the account or indeed even submit paperwork to enable a valuation – just demand payment of what was due under the contract. As our friendly meerkat would say “simples”.
In early 2014 ago a client was confronted with a threat of a winding up petition on the basis that they had not responded to a Default Payment Notice; “pay now” screamed the solicitor on the other side or risk your client being wound up (the legitimacy of abusing the insolvency legislation to recover debts is not something that I advocate as it usually ends in tears- but a story for another day!). The solicitor on the otherside referred me to the case of R & S Fire and Security Services Limited v Fire Defence which he said was authority for the proposition that absent a response to a Default Payment Notice the amount claimed was due. I had not read the said case previously and so duly considered what was put to me thinking that the solicitor on the otherside must be very clever indeed – only he wasn’t. Whilst R & S did support such proposition it did not prevent a set-off being applied pursuant to insolvency legislation – the fact that my client had not responded to a Default Payment Notice did not in the particular circumstance mean that the payment was due (an argument I have now used on more than one occasion when clients have been threatened with insolvency legislation). In addition I suggested to the solicitor that he may want to actually read the contract because in fact the payment to his client had not even fallen as due!
But the arguments that I put forward in 2011 and repeated in 2013 remain very simple and good arguments when used properly. What was perhaps surprising was the amount of lawyers jumping to report upon the case of ISG Construction Limited v Seevic College[ 2014] EWCH 4007 (TCC) when Mr Justice Edwards-Stuart reaffirmed the principle that absent a Payment Notice or Notice to Pay Less in response to a valid payment application submitted, the amount applied for in the interim application must be paid. I was conducting an adjudication in late December 2014 against a well known construction law firm when they sent me their newsletter referring to the above case. I was going to ask the question how could they therefore defend the current adjudication because in effect they would have to argue against themselves but I never had to – their client just conceded defeat.
Timing however is everything. The client came to me on the above adjudication and said that they thought they could succeed on a payment notice technicality. I looked at their papers and their construction contract and said to them that they may well succeed in such an adjudication in a months time, but not now. We simply deferred taking any action until such time as we knew we could succeed.
What amusement I had therefore in January 2015 when a different client presented me with a letter from another leading construction law firm telling them that they had failed to respond to Default Payment Notices and therefore if they did not pay they would be subjected to an adjudication. So again the first thing I ask of the client is to see their contract and details of the valuation. If the other side had actually bothered to read the contract before writing to my client they would have realised nothing yet was due – they should have kept quite and waited to see if my client did actually fail to respond to notices. The effect of the letter from said firm was to prompt my client into serving the requisite notices thereby ensuring that they had complied with their Construction Act requirements and that nothing was due – certainly not on a technicality. To be honest as I had some years previously drafted the contract terms of my client I doubted very much that they had fallen foul of their own contract and I suspected that in the other solicitor’s eagerness to impress his client he had written a letter without actually analysing whether what he was saying would stand up to scrutiny.
In given circumstances the 2009 Construction Act amendments that came into force in 2011 can be used to ensure prompt recovery of payment at minimal cost – i.e without the need for your account to be assessed by the adjudicator. Of course it does not prevent the otherside subsequently seeking a review of the account on a later valuation date and seeking repayment of any overpayment, but in my experience the dynamics of the case have totally changed at this point – he who holds the money is king.
In my opinion the law in this matter is very straightforward although too frequently I have seen lawyers get it wrong – perhaps too eager to impress their client or alternatively the matter is delegated to the most junior lawyer in the team. Should you have any queries on this subject matter then I would be delighted to assist.
Matthew Dillon, Principal, MJD Solicitors