Severfield (UK) Ltd v Duro Felguera UK Ltd

[2015] EWHC 3352 (TCC)

This was a claim for summary judgment which, although it was not an adjudication enforcement case, included discussion of the payment principles under the Housing Grants Act (“HGCRA”). Mr Justice Coulson provided a useful summary of the recent case law:

“Over the course of the last year there has been a flurry of cases in which Edwards-Stuart J has considered the situation in which a contractor has notified the sum due in a payment notice, and the employer has failed to serve either its own payment notice or a payless notice. Those cases … are authority for the proposition that, if there is a valid payment notice from the contractor, and no employer’s payment notice and/or payless notice, then the employer is liable to the contractor for the amount notified and the employer is not entitled to start a second adjudication to deal with the interim valuation itself.

All of these cases concern the situation where the contractor is seeking to take advantage of the absence of any notices from the employer to claim, as of right, the sum originally notified. That approach is in accordance with the amended provisions of the 1996 Act. But because of the potentially draconian consequences, the TCC has made it plain that the contractor’s original payment notice, from which its entitlement springs, must be clear and unambiguous.”

The Judge then reminded the parties of the words of Mr Justice Akenhead in the Henia v Beck case (Issue 183):

“If there are to be potentially serious consequences flowing from it being an Interim Application, it must be clear that it is what it purports to be so that the parties know what to do about it and when.”

Here the contract between the parties was for the design, supply and erection of steel structures on a site in Manchester. The project involved the construction of two power generation plants, each comprising several different structures. In the terms of the HGCRA, it was a “hybrid” contract. Some parts fell under the provisions of the HGCRA, other parts did not. The court had to decide how to treat payment applications made under the contract. Mr Justice Ramsey had said this in the case of Cleveland Bridge (UK) Ltd v Whessoe-Volker Stevin Joint Venture [2010] EWHC 1076 (TCC):

“It also follows that the right to refer disputes to adjudication under section 108, the entitlement to stage payments under section 109, the provisions as to dates of payment under section 110, the provisions as to notice of intention to withhold payment under section 111, the right to suspend performance for non-payment under section 112 and the prohibition of conditional payment provisions under section 113 will only apply to the Subcontract in this case, insofar as the Subcontract relates to construction operations.”

Mr Justice Coulson rejected the suggestion that the provisions of the HGCRA ought to be incorporated wholesale, even in a hybrid contract, to apply to all the works. In the Judge’s view, the court must uphold that different regime in respect of all claims to payment with regard to the works which were excluded by the 1996 Act. Although it was “uncommercial, unsatisfactory and a recipe for confusion”, the result of Parliament excluding certain construction operations from the HGCRA was that in situations as the one here there would be two very different payment regimes.

The Payment Notice relied upon here was for some £3.7 million, of which £1.4 million related to works under the HGCRA element of the contract. However, the notice of December 2014 identified the sum due as £3,782,591.12. The £1.4 million now claimed was not said to be the sum due, and was not the notified sum. There was no reference in the payment notice to the sum of £1.4 million. It was not therefore a payment notice in respect of that claim. You cannot “convert the sum notified by refining it later on”.

It was not sufficient to say that because the application was supported by a spreadsheet with a number of line items, the “notified sum” consisted of each of the sums in each line item. In the view of the Judge, this was not the purpose or intention of the payment provisions of the HGCRA. It would make for unnecessary complexity to say that the notified sum was not the net total claimed, but each (or just some) of its individual components. In order to be a payment notice, the notice has to set out the basis on which the sum claimed has been calculated. The December 2014 Notice and the accompanying spreadsheet did not begin to address the complexities of what were and were not construction operations. It was not at all clear or unambiguous from either the notice or the accompanying spreadsheet that £1.4 million was the minimum due in respect of construction operations within the HGCRA. All of which led the Judge to conclude that:

“Adjudication, both as proposed in the Bill and as something that has now been in operation for almost 20 years, is an effective and efficient dispute resolution process. Far from being a ‘punishment’, it has been generally regarded as a blessing by the construction industry. Furthermore, it is a blessing which needed then - and certainly needs now - to be conferred on all those industries (such as power generation) which are currently exempt. As this case demonstrates only too clearly, they too would benefit from the clarity and certainty brought by the 1996 Act.”

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