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Are you Estura 'bout that - The court confirms that occasionally fairness trumps procedure when deciding a case where an employer failed to serve a pay less notice in response to a contractor's application for payment
- AuthorLaughlan Steer
A recent decision from the Technology and Construction Court offers further clarity on one of the ways to resist enforcement of an adjudicator’s decision. Laughlan Steer, Associate in our Construction law team, provides the legal and factual background to the case and explains the court’s approach.
In Galliford Try Building Limited v Estura Ltd the TCC ordered a partial stay on the basis that full enforcement would result in a “manifest injustice” to the paying party.
Following Estura, respondents attempted to resist enforcement under the aegis of “manifest injustice”, but as we know from Equitix v Bester, it is only in “rare and exceptional” instances that this will be effective.
JRT Developments Ltd (“JRT”) v TW Dixon (Developments) Ltd (“TWD”) is one such “rare” example of the court determining that enforcement would result in “manifest injustice.”
TWD, a company incorporated to build a 14 house development in Shropshire, was owned and run by Mr and Mrs Dixon, an elderly couple with no experience of construction. TWD engaged Mrs Dixon’s nephew, the owner of JRT, under a 2011 edition JCT Minor Works Contract with contractor’s design (the “Contract”). The funding came from the Homes and Communities Agency (“HCA”). Both the choice of contract and the fact it was unamended are striking details.
JRT engaged directly with HCA’s valuer, ignoring the contractual payment provisions. The valuer certified interim sums, with JRT issuing an invoice to TWD which was paid with funds from HCA. JRT never issued a payment application.
In June 2019 JRT elected to terminate the Contract having been paid the aggregate value determined by HCA’s representative. Both parties allege repudiatory breach by the other but engaged in a dialogue to resolving the account.
There followed what could only be described as an opportunistic application for payment. This post-termination application bore no reference to the Contract and TWD responded by querying its content. JRT then issued a letter entitled “Notice – default payment notice” restating its position. TWD responded, requesting 21 days to “undertake a thorough review” of JRT’s application. JRT then issued to TWD a letter entitled “Payment notice in default” specifying JRT’s failure to serve a payment notice and restating the notified sum of £952,579.00. TWD responded with a list of queries but neglected to serve a pay less notice.
What happened next will come as no surprise - JRT referred a smash and grab dispute to adjudication, relying upon the payment provisions of the Contract. The adjudicator found that the disputed payment notice was valid and that TWD was liable to JRT in the sum of £952,579.00.
TWD did not pay the award sum so JRT commenced enforcement proceedings. TWD issued Part 8 proceedings, seeking a declaration that the disputed payment notice was invalid. However, the court determined that the claim was more suited to a Part 7 action given the substantial dispute of fact between the parties in relation to the terms of the Contract. Proceeding with a Part 7 claim, TWD amended its pleadings to include a true valuation of the project account.
During the enforcement proceedings, TWD sought (and obtained) a stay, citing the risk of manifest injustice should it not be granted. In reliance upon Estura, TWD cited its inability to pay the award, and the relevance of “all the circumstances” of its case.
The court agreed the circumstances of the case were “very unusual”, as follows:
- TWD relied heavily upon JRT (a family member) and their dealings were informal. JRT never invoiced TWD for greater sums than those agreed with HCA’s valuer, and prior to termination, had never issued an application for payment under the Contract.
- The context of this application was also relevant; TWD was ignorant of both the effect of the application and the contractual notice provisions. While TWD intended to resolve the account, JRT was laying the groundwork for an adjudication (while offering to mediate).
- The sums sought in the application were considered against the true value of the project. The application contained sums to which JRT was plainly not entitled and it was likely that TWD had actually overpaid JRT.
- Absent a stay, TWD would be forced into liquidation and would be precluded from proceeding with its Part 7 claim. Nor would TWD be able to recover a judgment sum from JRT based on its meagre profits and indebtedness. The court noted TWD’s promptness in commencing its claim and that the test in Wimbledon v Vago had been met.
Both a crumb of comfort for vulnerable payors and deterrent to sharp contractors, the judgment demonstrates the court’s willingness to consider all the circumstances in such cases, albeit that it is only rarely that a party will be successful in obtaining a stay of execution.
This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.