UK: Payment Due Under A Final Application For Payment – Is A Pay Less Notice Required If You Dispute The Sum Applied For?

This was a principle considered in the recent Court of Appeal case of Adam Architecture Ltd v Halsbury Homes Ltd [2017] EWCA Civ 1735, in which a firm of architects appealed against a decision that found that its employer, Halsbury Homes Ltd ("Halsbury"), was not required to pay an invoice which the architect had issued when its appointment had been terminated.

In this case, Halsbury had accepted Adams Architecture Ltd's ("Adams") fee proposal in relation to a housing development project. This proposal was subject to the RIBA conditions of contract. Adams had begun work in October 2015 and in December 2015, Halsbury wrote to it stating its intention to use an alternative firm of architects. Adams stopped work on the project and submitted an invoice for the services it had undertaken up to the date of Halsbury's notice.  Halsbury did not serve a pay less notice and refused to pay the sums invoiced. Adams raised adjudication proceedings for payment. The adjudicator agreed with Adams and awarded it payment of the sums claimed in the invoice. 

Both parties referred the dispute to the Court. Halsbury sought confirmation that it was not liable to pay the invoice. Adams sought to enforce the adjudicator's decision. In the first instance the Court held that the notice from Halsbury terminating Adams appointment was a repudiatory breach of contract which Adams had accepted. Accordingly, no pay less notice was due as the appointment had been discharged and the invoice was in effect Adams' final account.
On appeal this decision was overturned and the Court held:

• The Construction Act, and in particular s110 and s111, applied to both interim and final applications for payment. This included payment for invoices issued following termination of a contract.
• If Halsbury wanted to resist payment it required to issue a pay less notice.
• If no pay less notice was issued, Halsbury was required to pay now and argue later about whether the sums claimed by Adams were actually due.

This is not new law, but a timely reminder to employers, contractors and professionals that pay less notices must be issued in relation to both interim and final applications for payment. Otherwise there is a real prospect of a successful "smash and grab" adjudication being issued against them.

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