Background facts

The case forms part of a long running dispute between the parties. In September 2021, ISG as the main contractor, appointed FK under a subcontract to carry out roofing and cladding works on a project in Bristol known as Project Barberry. In July 2022, FK issued an Application for Payment in the sum of £1,691,679.94 – in response ISG issued a Pay Less Notice in September 2022. On 19 January 2023, FK referred a dispute over the validity of ISG's Pay Less Notice to adjudication.

The adjudicator Mr Wood, decided on 27 February 2023 that ISG had failed to issue a valid Payment Notice and the Pay Less Notice was out of time and therefore invalid. He ordered that ISG pay FK the sum of £1,691,679.94 plus VAT ("Wood Decision"). ISG failed to pay following which, FK brought enforcement proceedings and the payment was made by ISG.

ISG brought another adjudication which was heard before Mr Molloy on 14 April 2023 who decided that the gross valuation of FK's works was £3,736,679.72("Molloy Decision").

ISG then issued proceedings seeking a declaration from the Court that the Molloy Decision be enforced meaning that FK was not entitled to recover more than £3,736,679.72 and should repay any amounts over and above this sum (including repayment of the sum paid under the Wood Decision).

Decision

ISG's case was that whilst the Wood Decision was valid at the time, matters moved on when the TCC decided in a claim between the parties (relating to a different project) that FK could not rely on a late application for payment as a default payee notice – the same had applied under the Wood Decision so that decision was wrong.

FK's case was that ISG could seek to apply repayment in a future payment cycle, the Wood Decision was valid as it relied on estoppel arguments (which did not affect the TCC's decision in the other proceedings).

The TCC held that ISG were entitled to the declarations sought and repayment of the sum paid under the Wood Decision. The TCC held that the temporary binding effect of the adjudicator's decision must yield to the final effect of the correct judgment (of the TCC in this case). FK is seeking permission to appeal to the Court of Appeal – watch this space.

Comment

This case was the first to decide that a late application for payment cannot be considered in accordance with the building contract under s.110(4) of the Construction Act i.e. it cannot act as a default payee notice where an effective payment or pay less notice has not been served.

In uncertain economic times, where "smash and grab" adjudications often feature widely, this decision will come as a relief to many and demonstrates that a late application for payment can prove fatal.