Take notice

Judges have been in a right muddle over payment notices, but a recent judgment should put them – and adjudicators – back on the right path

"Your decision, however wrong, is still binding. The court cannot interfere. That’s why it is important, dear adjudicator, to get it right…"

Do you number any Judges among your pals? Or do you have any adjudicator friends? If so, do the industry a favour. Call them up and get them to read the judgment SL Timber Systems Ltd vs Carillion Construction Ltd. It is case number 66 in our series, and it is all about the payment rules and payment notices in the Cinderella part of the Construction Act.

Those payment rules I will explain in a moment. They have been quarrelled about in numerous adjudications and in the High Court, too. Snag is, the judges have, how shall I put it, not quite been of one mind about the way the payment notices work. Nor is it surprising that some adjudicators have got the payment rules a tad wrong. Truth to tell, some adjudicators are hopelessly wrong. That's why I ask you to read SL Timber.

The new payment rules include three notices. I call them green, amber and red. Some call them 110, 111, and 112 (Northern Ireland has different numbers). Use the colours. The green notice is to be sent by the payer to the payee not later than five days after the due date – but more usually, a date before the day the cheque is due. That green notice specifies the amount of payment proposed to be made. Stop for a moment. The green notice does not publish the amount due; it publishes the amount the payer intends to pay. Huge difference!

Anyone who has worked for a contractor will have received an order from their boss not to pay the amount due but to trim the cheques because things are a bit thin this month. True? Don't get the green notice wrong. It is a clever device intended by the Construction Act to give early warning of the size of the coming cheque and to give the payee an immediate opportunity to call for a referee if they are peeved by the notice.

Snag is, some payers fail to send the green notice. And now comes a mistake. Some judges and some adjudicators then say that the failure to send the green notice means that the amount applied for by the payee becomes the amount payable. This is an attractive argument because no sanction is imposed in the act on the failure to send the notice. But it is a huge leap to then introduce the sanction that the amount applied for therefore becomes due. Parliament's intention was that the green notice be merely an early warning device.

Lord Macfadyen in SL Timber has given the clearest explanation about the use of those payment notices. The absence of a green notice does not ordinarily make the amount claimed by the payee the sum due. It is still up to the payee to show that the sums claimed are really the sums due.

Then it is important to consider the separate operation of the amber notice. This device has to be issued by the payer if it intends to withhold money from sums actually due and otherwise properly payable under the contract. If the amber notice is defective or late, the built-in sanction is plain: you can't withhold. But a missing green notice is irrelevant.

A fair number of adjudicators, me included, have been doing what Lord Macfadyen says is right from the beginning. We were not following what some of the other judges were saying, simply because there were mixed signals. As Lord Macfadyen says: "The cases that were cited [in this hearing] are not, it seems to me, wholly consistent." Nor was he satisfied that the leading textbooks had fully understood the position.

The fact is that the absence of the green notice and/or the absence of the amber notice does not relieve the party that is making a claim for payment of the ordinary burden of showing that it is entitled under the contract to receive that payment. If it can do that, it is then protected by the absence of an amber notice from any attempt on the part of the other party to withhold all or part of the sum that is due.

But if you are one of those adjudicators who refuse to accept this judge's explanation and treat the absence of the green notice as the green light to order payment of money applied for, what now? Your decision, however wrong, is still binding. The court cannot interfere. That's why it is important, dear adjudicator, to get it right.

Readers are invited to forward recent judgments for reporting in this column (with full acknowledgement) to: Tony Bingham, 3 Paper Buildings, Temple, London EC4Y 7EU. DX:007I LDE

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