Final account valuation can be the subject of a second adjudication

Section 111 of the Housing Grants, Construction and Regeneration Act 1996 (as amended) (“HGCRA”) provides that where a payer fails to issue a payment notice the sum applied for by the payee becomes the ‘notified sum’. If the payer then subsequently fails to issue a pay less notice then the ‘notified sum’ applied for becomes the sum due. The oft-cited cases of ISG Construction Ltd v Seevic College [2014] EWHC 4007 (TCC) and Galliford Try Building Ltd v Estura Ltd [2015] EWHC 412 (TCC) confirmed that where a payer fails to serve a pay less notice they are deemed to have agreed the value of the application, meaning that the valuation of that application cannot be dealt with in a subsequent adjudication. In the case of Harding (t/a/ M J Harding Contractors) v Paice and another [2015] EWCA Civ 1231, which was a case dealing with the valuation of an account on termination, it was confirmed by the Court of Appeal that the principle developed in ISG and Galliford only applied to interim applications.

Given that Harding was a case concerning the valuation of an account on termination, the question remained as to what the position would be in respect of normal final account valuations and whether or not the principle developed in ISG and Galliford applied to these or not. This question has now been answered by Ms Finola O’Farrell QC (sitting as a deputy High Court judge) in the case of Kilker Projects Ltd v Purton (t/a Richwood Interiors) [2016] EWHC 2616 (TCC). Considering the above cases she held that the payer could refer the valuation of the final account to a second adjudication. The first adjudicator that dealt with the dispute between the parties decided that, as the payer had not issued a pay less notice, the notified sum (which was the sum that had been applied for) became due. He did not look into whether what was applied for represented the true value of the account. Accordingly, the second adjudicator had jurisdiction to determine the value of the final account and his decision could be enforced. In respect of the HGCRA and the Scheme for Construction Contracts (England and Wales) Regulations 1998, she pointed out that these were concerned with cash flow and that they “establish a regime for determining stage or periodic payments throughout a relevant construction contract. They do not affect the ultimate value of the contract sum”. As such, a party is entitled to have the ultimate value of the contract sum determined.

This decision confirms what many believed the position to be.

For more information on:

• adjudication, click here; or
• payment and pay less notices, click here.