Jurisdiction of the adjudicator: an update
There have been a number of cases recently on adjudicator jurisdiction. The latest is ISG Construction Ltd v Seevic College (2014) in which the Technology and Construction Court found that a lack of a pay-less notice from the employer following an interim payment application meant that the employer had effectively agreed the value of the works carried out to date referred to in the application and so could not seek to challenge that valuation in a subsequent adjudication.
ISG Construction Ltd and Seevic College entered into a JCT Design and Build Contract 2011. The contract stated that interim payments would be made to ISG on a monthly basis. ISG submitted a payment application for just over £1m and Seevic failed to serve a payment notice or a pay-less notice in accordance with the contract. The effect of this was that the sum due was that stated in ISG’s interim payment application.
Seevic failed to pay the sum claimed and ISG commenced an adjudication (the First Adjudication). It was decided that ISG was entitled to the amount stated in its payment application. In anticipation of losing the First Adjudication Seevic commenced a separate adjudication to value the works to the date of the payment application (the Second Adjudication). The Second Adjudication was decided in favour of Seevic. By the First Adjudication Seevic was directed to pay just over £1m as a result of its failure to serve any notices in response to the payment application. By the Second Adjudication Seevic was entitled to a reimbursement of £768,525, being the over-valuation of works decided by the Second Adjudication.
ISG applied to court to enforce the First Adjudication award and to set aside the Second Adjudication award. The TCC found for ISG on both counts. The lack of a pay-less notice meant that Seevic could not challenge the value of the works claimed in ISG’s payment application. This being the case the First Adjudication had effectively decided the question of the value of the works to that point. The same question could not therefore be susceptible to a second adjudication.
The practical consequence of the decision is that if the trigger for payment in a construction contract is the service by a contractor of an interim payment application then the failure by an employer to serve a pay-less notice means the contractor is entitled to the amount stated in the interim application, irrespective of the value of the work actually carried out. The employer cannot seek to get around this failure by alternative means. While the final account can balance out issues such as over-valuation an employer in this situation would be left out of pocket pending the completion of the final account.