Get your notices in!

Below is an early Christmas gift in the form of some practical advice for construction professionals in the UK in light of Adam Architecture Ltd v Halsbury Homes Ltd [2017] EWCA Civ 1735.

The case involved Adam Architecture Ltd (“Adam”), an architectural practice, and Halsbury Homes Ltd (“Halsbury”), a property developer. In 2015 Halsbury was proposing to construct 200 homes in Loddon, Norfolk. Halsbury wanted Adam to complete the design work. Adam duly submitted its fee proposal and stated that its appointment would be subject to the RIBA Conditions. Halsbury accepted Adam’s proposal.

Here’s where things went awry. Halsbury later sent an email to Adam stating that it was going to use another architect on the project as well. The problem for Adam was that Halsbury wanted the other architect to design the layout of the whole scheme. That was not what was originally discussed and Adam’s fee proposal showed that it would be involved in the design of the whole development. As Adam put it in its email back to Halsbury, “If we have no input in the layout then there is really no place for us in this project”. Ten minutes after that, Adam sent an email to Halsbury stating that it had been instructed to stop work (which it did).

Here’s where it gets interesting. Adam later emailed Halsbury “Our agreed fee is no longer relevant and, all other matters considered, we need to draw a line under our work to date.” Adam also attached its invoice for payment for works carried out up to the date of Halsbury’s email. Halsbury failed to serve a pay less notice on Adam or pay Adam’s invoice.

As you might have guessed, Adam brought an adjudication against Halsbury for the sums falling due from its invoice. The adjudicator found in Adam’s favour essentially because Halsbury failed to issue a pay less notice. Adam then issued proceedings to enforce the adjudicator’s decision.

The TCC came to a different conclusion to the adjudicator. It found that Halsbury’s email to Adam was a repudiation of the contract and that Adam accepted that repudiation by stopping work and sending the invoice (see more on this below). Therefore the parties were discharged from their primary obligations under the contract. Adam did not agree with the decision so it appealed to the Court of Appeal, mainly on the basis that Halsbury had not issued a pay less notice, so payment became due to Adam and the TCC had erred in its decision on repudiation.

The Court of Appeal was aware of the high importance of the statutory interpretation of section 111 of the Housing Grants, Construction and Regeneration Act 1996 (the “Act”) to the construction industry. Rather than include the words of the Act in this article, you can find them here. Sections 109 to 111 of the Act are the main sections to take into account. As you are no doubt aware, construction contracts require an adequate mechanism for payments. The question was whether the requirement for pay less notices only applies to interim payments.

The Court of Appeal did not agree with the TCC. It found that, whilst Halsbury’s email was a repudiatory breach of contract, Adam had not accepted that breach. Instead it found Adam treated Halsbury’s email as a termination of the engagement without appropriate notice. Adam therefore stopped work and sent an invoice up until the termination date for money due under the contract. It did not include a claim for damages for breach of contract, so it appeared to the Court of Appeal that Adam had not accepted the repudiation.

As the Court of Appeal found that there was no repudiation, it could focus its attention on whether pay less notices need to be sent for termination or final accounts, or just for interim payments. It found, after reading sections 109 to 111 of the Act, that the requirement for a pay less notice applies to all payments made under a construction contract if you intend to pay less than the notified sum.

The conclusion is clear, namely that the payment notice regime contained in sections 110 and 111 of the Act applies as much to final or termination accounts as it does to interim payments.

Now for the all important practical advice: make sure you send your notices! Whether it’s a notice of termination, acceptance of repudiation, payment notice or pay less notice, make sure it:

  1. is clear;
  2. does what it says on the tin;
  3. is given in accordance with any contractual requirements; and
  4. is issued on time.

The above is especially important if you are on the receiving end of repudiation or a payment notice and you want to accept or reject the repudiation or pay less than the notified sum.

If you have any queries about your notices, please get in touch with the author.

Merry Christmas!

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.