Does the Scheme for Construction Contracts apply after the termination of a construction contract? Does an employer have to serve a Pay Less Notice in respect of applications for payment received after a contract has been terminated? Following guidance from the Court of Appeal, the answer is below.
In Adam Architecture Limited v Halsbury Homes Limited the architect (Adam) pursued a claim for fees against the developer (Halsbury) following termination of its engagement.
The key issue was whether s.111 of the Construction Act 1996 applied only to interim payments or whether it also applied to payments following completion or termination.
Adam had been appointed as architects on a new housing development following Halsbury’s acceptance of its fee proposal. Adam started work but was later informed that Halsbury would be using an alternative architect for the layout of the houses. Adam considered that this would leave them with no real role on the project and that it had effectively been instructed to cease work.
Adam then submitted an invoice for works carried out. Halsbury did not issue a Pay Less Notice and did not pay.
Adam was successful in adjudicating against Halsbury and sought to enforce the adjudicator’s decision. Halsbury disputed the adjudicator’s jurisdiction and challenged the enforcement proceedings.
Halsbury’s challenge was successful. Adam appealed.
The Court of Appeal noted that s.109 of the Construction Act was expressly limited to interim (or “stage”) payments; whereas s.110 and s.111 of the Act referred to “payment”. Therefore s.111 applied to all payments “provided for by a construction contract”.
As the invoice did not relate to a claim for damages for breach of contract, Adam had not accepted any repudiatory breach, and so the invoice related to a payment under the contract. In the circumstances, Halsbury should have served a Pay Less Notice. Adam’s appeal was therefore successful.
Consequently, all applications for payments under a construction contract cannot be disputed (on a smash and grab basis) without a Pay Less Notice, even if the contract has been terminated.
