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Pay Less Notices: Court of Appeal’s judgment in Adam Architecture v Halsbury Homes Ltd

November 2017 - Issue 99

The recent Court of Appeal decision in Adam Architecture Ltd v Halsbury Homes Ltd has clarified whether the Housing Grants, Construction and Regeneration Act 1996 (‘Construction Act’), section 111(3) applies only to interim payments.

S.111(3) permits a party to withhold payment after the final date for payment of a sum due under the contract provided that an effective notice of intention to pay less has been given. The notice must specify the sum the payer considers due on the date the notice is served and the basis on which that sum is calculated and prior to the prescribed period (parties are free to agree the prescribed period) before the final date for payment. Once the pay less notice has been served, the paying party must pay the specified sum within the pay less notice by the final date for payment.

It has been clear that the payment regime outlined within the statutory provisions applies to interim payments, however there has been uncertainty as to whether the regime also applied to final payments due following completion of works, or to payments due on the termination of a contract.

Case summary

Adam Architecture Ltd appealed against a decision that Halsbury Homes Ltd was not liable to pay an invoice which the architects had issued at the termination of their contract.

However:

On 2 November 2017 the Court of Appeal held that s.111 of the Construction Act apply to final invoices and payment due after the termination of a contract. Although it was noted that the purpose of the Act was to promote prompt payments made throughout the supply chain, primarily focussing on interim payments, it was not limited to them. On reading s.109 to s.111 of the Act, it was noted that the provisions were wider in scope than just applying to interim payments. S.109 was expressly limited to interim payments but S.111 related to all payments which were “provided for by a construction contract”, including final invoices and termination payments.

As a result, Halbsury Homes was entitled to serve a pay less notice and was therefore due to pay the full invoice in full.

The Court of Appeal also determined that Adam Architects’ correspondence on 3 December 2015 did not amount to acceptance of Halsbury Home’s repudiatory breach. Adam Architects had treated Halsbury Home’s email as a termination of the contract without the appropriate notice. As a result, the invoice submitted was for works due under the contract following termination under the RIBA conditions in the contract, rather than for damages for breach of contract.

In summary, the judgment confirms that the payment regime outlined within the Construction Act applies to final invoices and termination payments, in addition to interim payments.

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