Downs Road Development LLP (“the Employer”) engaged Laxmanbhai Construction Limited (“the Contractor”) to undertake construction works in connection with the development of land at Downs Road, London (“the Contract”). 

On 26 February 2021, the Contractor sent Interim Application 34 stating the sum due as £1,888,660.70. On 3 March, the Employer sent Payment Notice 34 with the net amount for payment being £0.97. The covering email stated “we confirm that a further Payment Notice will be issued to you in due course”. The Employer had adopted a practice of sending payment notices valued at £1 or £0.97 to gain time in order to make an assessment of the sum it actually believed to be due. On 9 March, the Employer sent Payment Notice 34a and a valuation assessment, which provided for a net payment amount of £657,218.50. This was paid by the Employer on 26 March.

The Contractor then gave Notice of Adjudication for the amount of Interim Application No 34. The dispute was as to "the true value of the sum due pursuant to Interim Payment No 34 as at the Due Date of 26th February 2021". The Employer raised a defence in its Response of the Contractor’s alleged breach of contract in respect of the capping beam. The Adjudicator concluded that his task was limited “exclusively to the proper valuation of [Payment Application 34]” and that the net sum due at the time of Interim Application 34 was £771,045.48. Less £657,218.50 which had been accepted in Payment Notice 34a and the deduction of £10,000 as a consequence of the non-provision of warranties, the Contractor was due £103,826.98 (“the Decision”).

On 24 June 2021, the Contractor threatened to suspend performance of the works if payment was not made pursuant to the Decision. This led to the commencement of Part 8 Claim proceedings by the Employer. The Employer sought a declaration that the Decision was unenforceable because the Adjudicator had not addressed their capping beam defence. 

The first issue before HHJ Eyre QC was the validity of Payment Notice 34. Mr Eyre referred to the covering email as evidence that the sum in Payment Notice 34 cannot be interpreted as being the sum the Employer considered due at the payment due date under Section 110A (2)(a) of the HGCRA. In concluding the payment notice was invalid, Mr Eyre highlighted that Payment Notice 34 failed to set out the basis of the calculation, and does not show how the Employer had arrived at the figure of the gross valuation. More fundamentally, a payment notice which was no more than a holding position did not accurately state the sum which the Employer believed was due, which is a requirement of the 1996 Act and most standard form contracts.

The second issue that HHJ Eyre QC considered was whether the Adjudicator’s failure to address the capping beam cross-claim constituted a breach of natural justice and therefore left the Decision unenforceable. The Adjudicator concluded that this was outside of his jurisdiction because it was not part of the dispute between the parties “at the relevant time”, this date being 26 February 2021. The Adjudicator viewed his jurisdiction as confined to determining the correct sum due in respect of Interim Application 34. The capping beam defence was being put forward as a matter which the Employer said reduced the amount which was due in that cycle. Mr Eyre found that the Adjudicator deliberately decided not to address a defence which the Employer was “entitled to advance and entitled to have considered”. This was a material failure and therefore the Decision was, as a consequence of that breach of natural justice, unenforceable.

HHJ Eyre QC lastly considered whether any part of the Decision was severable, namely the sum due in payment cycle 34 less the capping beam cross-claim. The Adjudicator had reached a single decision and set out his findings and conclusions in respect of reaching that single decision. My Eyre said it would be “artificial and inappropriate” for the court to stop at any particular point and conclude that the decision was binding up to that stage but not as to the stages which followed. Mr Eyre decided that it therefore follows that no part of the Decision can be severed. 

It is unsurprising that the court concluded in this case that the Employer’s tactic of serving payment notices as a holding position pending proper assessment was not effective in law: is the notice did not meet the formal requirements (as to setting out the basis of the calculation) and to all intents and purposes it was a sham, in that it failed to set out the Employer’s actual belief as to the sum due. The Employer though was saved by the principles of natural justice in this instance, and this case illustrates that in a “true value” dispute, the Adjudicator has the right and indeed the duty to consider all of the issues that might impact on the true value of the contractor’s account.