Articles from the Silver Shemmings Ash Team on contractual matters, recent case law changes and items of interest in the construction and property world
“After Grove, will sllO(4) be the next (and last) payment issue for the courts to decide?” Robin Orme, Arbitration Club, Law Courts Branch, 10 July 2018
July 10, 2018 | Silver Shemmings
It is perhaps no surprise that I take a different view about sli0B(4). Anecdotally, there is a difference of view among adjudicators as to how to interpret this section of the amended payment provisions. The different views can be characterised as ‘permissive’ and ‘prescriptive’, the latter being the one which I take. As far as I am aware, there has been no court judgement to decide which is correct.
Section 110B(4) states (and I apologise for the drafting, but take no responsibility for it):
(a) the contract permits or requires the payee, before the date on which the notice referred to in subsection (l)(a) [a valid payment notice required to be given by the payer or by a specified person not later than five days after the payment due date] is required to be given, to notify the payer or a specified person of:
the sum that the payee considers will become due on the payment due date in respect of the payment, and
the basis on which that sum is calculated, and
(b) the payee gives such notification in accordance with the contract,
that notification is to be regarded as a notice complying with section 110A(3) given pursuant to subsection (2)\_Gi i.e. a default payee notice] (and the payee may not give another such notice pursuant to that subsection).
The relevant part of the sub-section states “If the contract permits or requires the payee…to notify the payer or specified person…” The ‘permissive’ interpretation of s11OB(4) construes ‘permits’as being the equivalent of does not prohibit’. According to this interpretation, if the payer is required to give a payment notice but fails to do so, an application can become a default payee notice specifying the notified sum, even if the contract makes no provision for payment applications. If the payer then fails to serve a valid payless notice, the notified sum specified in the application, a document with no contractual status, must be paid, right or wrong. To my mind, this is not the clarity in the operation of the amended payment provisions, which TCC judgements have sought to achieve. 1
The alternative ‘prescriptive’ interpretation looks at the sub-section a$ a whole and starts from what is explicitly stated in the contract, and does not rely on what is hot. Under this interpretation, if there is no express provision stating that the contractor may or shall submit a payment application, the contract does not come within the ambit of sll0B(4).
1 See, for instance, Henia Investments Inc v Beck Interiors Limited , Caledonian Modular Ltd v Mar City Developments Ltd , and Jawaby Property Investment Limited v The Interiors Group L td and Another 
This is also the interpretation implicit in the explanatory notes accompanying the Local Democracy, Economic Development and Construction Bill when it was first published to Parliament:
Subsection (4) of new section HOB provides that where the parties had agreed in their contract that the payee was to notify the payer (or a “specified person”) of the sum that the payee believed was due in relation to a payment and of how that sum was arrived at (what in the construction sector is known as a payees “application’), such a notification is deemed to be a notice given pursuant to new section 110B(2) and, indeed, the payee cannot give a notice pursuant to new section 110B(2) in such a case.1 [Emphasis added.]
S110B was not amended as the Bill went through Parliament, i.e. the explanatory notes can be taken as a reasonable guide to Parliament’s intentions when passing the Bill into law. The words to note are “…where the parties had agreed in their contract…” i.e. you need to look at what they agreed and, in my view, cannot rely on what they did not expressly prohibit.
mere is a final provision in sllOB(4) which needs to be considered. For the contractor’s application to be regarded as a default payee notice, S110B(4)(b) requires that “the payee gives such notification [of the sum considered due and the basis on which it is calculated] in accordance with the contract”. Such notification “in accordance with the contract”can only be given if there is an explicit provision either permitting or requiring the notice to be given. If the contract is silent on this point, the required notification in accordance with the contract cannot be given.
In conclusion, the use of ‘permits or requires’seems to mirror the distinction between ‘may’ and ‘shaH’\x\ contracts (and elsewhere), the former being a power and the latter being a duty. To draw a parallel from statute, the adjudicator acting under the Scheme has powers (paragraph 13 – the adjudicator ma?) and duties (paragraph 12 – the adjudicator shall). Is anyone suggesting that the adjudicator has powers providing they are not expressly prohibited?
me title of this discussion is “After Grove, will sll0(4) be the next (and last) payment issue for the courts to decide?”. Grove is going to appeal, so maybe we are not yet “after Grove”. 2
2 Local Democracy, Economic Development and Construction Bill: Commentary on clauses (accessed at https://Dublications.parliament.uk/pa/ld20Q809/ldbills/0Q2/en/09Q02x-e.htm]
In Grove, Coulson certainly tried to make sure that the ‘true’ value part of his judgement was copper-bottomed – rarely do you see so many reasons for a decision on a single issue. I would just make two observations.
Coulson had to consider submissions that there was no clear mechanism by which any sum could be repaid to the employer if the interim application was found to be too high. Relying heavily on the Supreme Court decision in Aspect v Higgins,2 he held that the employer was entitled to recover the overpayment either by way of an implied mechanism in the contract or by way of restitution.
Beyond saying that he was following the Supreme Court decision, Coulson was somewhat vague as to the wording of the implied term. As adjudicators we are used to submissions which rely on implied terms without specifying what they are. It is strangely comforting that respected judges can be similarly imprecise,
Similarly, with his points about restitution (which I comment on with trepidation as this is a specialist field of law). It is clear that S&T, the payee, was enriched, but why was this unjust? And what were the grounds for restitution?
As I said, Grove\s going to appeal. If upheld, there are likely to be many fewer’smash-and- grab’ adjudications. If not upheld, the amended Construction Act is in my view defective and urgently requires further amendment.
Finally, does Grove have any relevance to the debate on s11OB(4)? I think it does.
Imagine the situation where an inexperienced payer fails to give a valid payment notice for the interim payment due following practical completion and no further payment is due until the final payment. The inexperienced payer may well not know about sllOB(4) default payee notices and may not realise that the sum in the payee’s application can become the notified sum which has to be paid, right or wrong. If Grove is upheld, the contractor’s cash-flow is preserved as the notified sum must be paid, but the payer can immediately start an adjudication on the ‘true’ value. If Grove is not upheld, resolution of the dispute will have to wait until the final payment is due, which will be at least a year away if there is a twelve-month defects period. 3
Turning back to answer the question in the title of this discussion, I doubt that s11OB(4) will be the last payment issue which the courts have to decide, or, at least, not if lawyers are involved.