Adam Architecture Ltd v Halsbury Homes Ltd

Section 111 of the Housing Grants, Construction and Regeneration Act 1996 applies to every payment provided for by a construction contract. Its scope includes interim payments, final accounts and termination accounts.

Unless an applicable pay less notice is served, the payer must pay the notified sum by the final date for payment. Payment does not conclusively determine the parties’ substantive rights. The payer may subsequently challenge the valuation and recover any overpayment.

Conduct which treats an employer’s communication as contractual termination, stops work and claims only sums due under the contract does not, without more, accept that communication as a repudiatory breach.

An architectural practice claimed fees for work performed on a housing development. After the employer transferred responsibility for the layout to another architect, the practice stopped work and submitted an account under its contractual payment arrangements. The employer neither paid the account nor served a pay less notice.

An adjudicator awarded the practice £45,490 plus interest and costs. In related proceedings under Parts 7 and 8 of the Civil Procedure Rules, Edwards-Stuart J held that the contract had been discharged by accepted repudiation, that no pay less notice was required and that the award should not be enforced.

The practice appealed. The central issues were whether section 111 of the Housing Grants, Construction and Regeneration Act 1996 extended beyond interim payments to final and termination accounts, and whether the practice had accepted a repudiatory breach.

1. Appeal allowed unanimously. Section 111 of the Housing Grants, Construction and Regeneration Act 1996 applies to both interim and final applications for payment. Its language refers to every payment provided for by a construction contract. It contains no limitation to interim payments. Section 109 is expressly confined to instalments, stage payments and other periodic payments, whereas sections 110, 110A, 110B and 111 use the broader term “payment”. Section 109(4), through the word “include”, confirms that the following provisions have a wider scope: per Jackson LJ, with whom Lindblom and Thirlwall LJJ agreed (paras [45]–[48], [65], [77]–[78]).

2. The statutory regime requires payment of the notified sum where no effective pay less notice has been served. It supports cash flow without making an interim or final account conclusive. The payer must pay first but may later challenge the proper valuation through adjudication, litigation, arbitration or another dispute-resolution process and recover any overpayment. The reasoning in Rupert Morgan Building Services (LLC) Ltd v Jervis and another [2003] EWCA Civ 1563 was approved, and Harding (trading as M.J. Harding Contractors) v Paice and another [2015] EWCA Civ 1231 was applied (paras [49]–[53], [62]–[65]).

3. Melville Dundas Ltd (in receivership) v George Wimpey UK Ltd [2007] UKHL 18 did not establish that section 111 was confined to interim payments. Its ratio concerned a lawful ground for withholding payment of which notice could not have been given within the statutory period. Lord Hoffmann’s separate comments and Lord Hope’s view favouring an interim-payment limitation did not form part of the ratio. Parliament subsequently addressed the insolvency problem in section 111(10) (paras [54]–[61]).

4. Assuming without deciding that the employer’s communication was a repudiatory breach, the practice did not accept it as such. It treated the communication as contractual termination, stopped work and claimed only the contractual price for work performed. Its account was a termination account under clause 5.17 of the contractual conditions, not a damages claim. The contractual payment machinery therefore remained available (paras [69]–[73]).

5. In the absence of a pay less notice, the practice was entitled to payment of both outstanding invoices. The adjudicator’s decision was correct and enforceable. The employer’s Part 8 proceedings were dismissed and summary judgment was entered for the practice in its Part 7 enforcement proceedings (paras [73]–[76]).

1. Court of Appeal (Civil Division): The appeal was allowed unanimously. The employer’s Part 8 proceedings were dismissed and summary judgment was entered for the architectural practice in its Part 7 enforcement proceedings: [2017] EWCA Civ 1735.

2. Technology and Construction Court, Queen’s Bench Division: Edwards-Stuart J granted the employer’s requested declarations, held that no pay less notice was required, refused to enforce the adjudicator’s award and dismissed the architectural practice’s claims. No citation is stated in the judgment.

3. Adjudication: The adjudicator awarded the architectural practice £45,490 plus interest and costs because the employer had not served a pay less notice.