Termination Of A Contract

Many a party to a construction contract has been “stung” by a failure to serve a pay less notice.  But what happens after termination? Does the requirement to serve a notice fall away?  The Court of Appeal has given recent guidance.

Facts

Halsbury Homes Ltd (Halsbury) engaged Adam Architecture Limited (Adam) in 2015 for design work on its house building project in Norfolk.  Adam submitted its fee proposal for staged work on the basis of RIBA Conditions.

Halsbury accepted the proposal and work started.  On 2 December 2015, Halsbury emailed saying it wished to continue with Adam but would use another architect’s layout for the scheme.

Within minutes, Adam emailed two responses.  First it felt there was no place for it on the project.  Second, it took the position it had been instructed to stop work.

A day later, Adam wrote with its invoice for all work carried out.  The response from Halsbury?  No pay less notice and no payment of the invoice.

Adam went for adjudication.  Absent a pay less notice, the adjudicator found for Adam on this and an earlier invoice.

TCC Proceedings

Both parties started proceedings in the Technology and Construction Court (TCC). Adam to enforce the adjudicator’s decision and Halsbury seeking declarations that:

1. The RIBA pay less regime did not apply to the December invoice
2. It was not liable to pay that invoice
3. The adjudicator's decision was unenforceable

The TCC found for Halsbury:

1. Halsbury's 2 December 2015 email was a repudiation of the contract
2. Adam had accepted that repudiation by its two emails of 2 December, by stopping work and by its letter attaching the invoice
3. Halsbury was not required to serve a pay less notice because:
   1. The contract had been discharged and the parties’ main obligations had come to an end
   2. Adam’s invoice was a final or termination account. The RIBA Conditions only required pay less notices for interim applications

The Court of Appeal

An aggrieved Adam appealed on grounds that:

1. Even though the RIBA Conditions only required pay less notices for interim applications, section 111 of the 1996 Construction Act (the “Act”) required pay less notices for both interim applications and any final or termination account
2. The TCC Judge’s decision regarding repudiation was wrong
3. The TCC should have enforced the adjudicator’s decision.

Judgment

The Court of Appeal found for Adam.  The adjudicator’s decision was correct and enforceable:

1. Section 111 of the Act applied to both interim and final applications.  If Halsbury wanted to avoid paying Adam’s final or termination account it was obliged to serve a pay less notice.  It had not done so.
2. Adam did not accept any repudiatory breach – it treated the 2 December 2015 email as a termination of its engagement without the appropriate notice.

Adam’s invoice was either an account following termination or a bill for work done to date after work stopped.  Either way – a claim for money due and the Act applied.  Without any pay less notice, Adam “had a cast iron case to recover payment on its outstanding invoices”.

Conclusion

Confirmation then, that a pay less notice is still required for an invoice or final account after termination.  Only where there has been a repudiatory breach by one party and that repudiation accepted, will this fall away.

As always, if in doubt, serve a pay less notice.  In the meantime, the search for the pill to end pay less notice headaches continues.

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This article first appeared in Architects Choice on 2nd January 2018.