Jacob Austin 00:00:00 Hi all, it's Jacob Austin here and welcome to episode 139 of the Subcontractors Blueprint, the show where subcontractors will learn how to ensure profitability, improve cash flow and grow their business. And for today's episode, I'm bringing you some of the latest construction legal decisions in the form of a spring case law. Coffee break will be running through four significant UK construction judgements from the last six months, covering a Supreme Court ruling on termination rights. The payment notice regime, which is yet again under the microscope, and what happens when a contractor refuses to pay an adjudication award and tries seemingly every argument going? And finally, a cautionary tale about what can happen when you cut corners on a single form when kicking off an adjudication. And I'll be explaining these in straightforward language, rather than the legal jargon that you might hear elsewhere, and explaining what they mean to you as a subcontractor. So let's dig in. Now, the reason I do these digest episodes is simple. Most subcontractors are busy. You pricing work, managing programs, dealing with variations that were never properly instructed, and main contractors who move the goalposts all over the place.
Jacob Austin 00:01:37 The last thing you're doing is reading through a list of court judgements on a Thursday afternoon. But here's the thing the courts keep answering the same commercial questions we deal with on live jobs every single day. When does the notice deadline kick in? If you win and adjudication and the other side refuses to pay, what can you actually do to get your hands on your money? Can a pattern of late payments give you the right to walk away? And what does getting a form wrong when you start an adjudication actually cost you? These four cases between them have direct implications for subcontractors, and knowing about them could help you to leverage those decisions and get the most out of your main contractor. And it could help you to learn from others mistakes so that you don't find yourself in the same boat. So let's start with case one. The biggest one. This went all the way to the Supreme Court, and the judgment came down on the 15th of January this year. It's a case between Providence Building Services, who is a contractor working for Hexagon Housing Association, on a good old JCT design and build 2016.
Jacob Austin 00:02:46 The work was a housing scheme in South London, and it dates back to actions in late December 2022, where hexagon paid one of the interim payments late. This is one thing you'll notice about court cases is they take a ridiculous amount of time, so you're better off avoiding them altogether. But nevertheless, here we are. Providence in this case, served a formal notice in line with the contract, highlighting the payment default. So far, so good. But here's the critical bit. Hexagon then went away and paid up within the 28 day window that the contract gives them to sort it out. The money arrived already late, but within the default time period, which meant Providence never actually built up a legal right to terminate because the problem was fixed before that right kicked in. In May 23rd, hexagon was late again on a different payment. The very next day, Providence issued a termination notice not under the standard route, which would have required the new late payment to run its full course first, but under a separate clause that deals with repeat defaults.
Jacob Austin 00:03:54 Providence's argument was we've been here before. We served the notice last time and it's happening again. So now we terminate immediately. But the Supreme Court said no. And their reasoning was really clear. The repeated default clause can only be used if a right to terminate had built up from the previous incident, but because that payment was made within 28 days of the default, notice, that right had never actually arrived. And because it didn't arrive, the shortcut to immediate termination wasn't available. Now, this judgment is significant because the JCT contract is used incredibly frequently, and the JCT 24 conditions adopt the same termination clause wording as the previous version. So this isn't just a 2016 problem. If you're working under a 2024 JCT subcontract right now, this ruling applies to you. Now, there's a few lessons that can be learned from this case. And yes, it technically went in favor of the employer, but the court said something important in their judgment as well. And it's a lesson that I've heard before from experienced people in the industry.
Jacob Austin 00:05:05 Termination is nuclear. It's a drastic step, and it's one that has to be clearly and strictly justified under the contract, in one sense, is a really big thing to terminate a contract, because what you're doing is putting paid to any more business, any more profit, any more turnover that's going to come out of that contract and you're going to leave somebody with a part finished job. But what the court said here was to use the other tools within the JCT contract first. When you're being paid late, you get the right to interest, you get the right to suspend work and the right to adjudicate. So use those levers first. The most powerful one for me is the right to suspend works. If you've not been paid for seven days, you do this by submitting a notice the very day the payment for is late, telling them pay within seven days or we're pulling offside. Nobody wants to be the person that causes the program to fail and fall. So a lot of the time after the contractors received that notice from you, they will do what they can to get you the money as quickly as possible.
Jacob Austin 00:06:09 What you don't do is just walk off site that puts you in breach of contract. And even though you might think you're doing it for the right reasons because you haven't been paid, you can be punished with contra charges, potential liquidated damages, and all the good stuff in between. And what this case tells you is if you're a subcontractor and a main contractor is paying you late, you can't skip the process. The first late payment in this case didn't start building up a termination, right, because the employer had remedied the problem the next time it happened. The exact same process should have been followed of submitting the notice and forcing the employer's hand, and to follow that step first before you get anywhere near that nuclear button. Next up, we have a case between Vision Construct Limited and a Jet Craft Dry Lining from the TCC in October 25th. This is a subcontract payment case, and it's about as directly relevant to your day to day as it gets. Vision construct was the main contractor and Gyp Craft was, you guessed it, the dry lining subcontractor.
Jacob Austin 00:07:16 They were working under a JCT design and build subcontract again, a 2016 form with a payment schedule that had been agreed between the two of them. The problem arose on an interim application that GIP craft had submitted, and vision issued a payment notice back, but it was four days late. They also didn't submit a separate pay less notice. When the case went to adjudication, it was decided that the full amount of chip crafts application had become the default, some due under the Construction Act. GIP craft were then awarded just under £217,000 plus interest. Vision then challenged this in court using three different arguments. First, they said the payment schedule has been badly worded so the whole thing should be thrown out and replaced by statutory default rules, which would have knocked out Gyp Craft's application in the first place. Second, they argued that because both parties had been sloppy with their notice timings for several months and nobody complained that some kind of informal understanding had developed and that late notices were acceptable, so Gyp Craft couldn't now use strict deadlines against them.
Jacob Austin 00:08:29 Thirdly, and most ambitiously, they tried to argue that their late payment notice should simply be read as a pay less notice, which has a later deadline in the TCC. The judge rejected all three arguments on the payment schedule. The court found that it clearly set out the relevant dates, and the court wasn't going to strike out a perfectly workable payment regime just because it wasn't worded exactly how the standard form was. Then, on the informality argument. They said that a consistent pattern of late notices without anything more was not enough to change the contract conditions, and that you'd need clear evidence of a shared understanding and genuine reliance between the two parties on that understanding. Not just that both parties were being a bit sloppy or a bit disorganized on the final point. Rebranding the payment notice as a pay less notice, the court decided that a late or non-compliant payment notice can't be retrospectively changed. It can't just become a painless notice because you want to rescue a missed deadline. The document said what it said it was what it was.
Jacob Austin 00:09:41 You don't get to change that after the fact. And so GIP crafts award stud. The commercial message here for subcontractors is an important one, because it means that the payment regime has real teeth, but only if you're using them. If you keep track of your application cycle on every job. No. When the main contractor's payment notice is due, if it comes back late or doesn't come back at all, understand that the full amount of your application should now be the sum due, so ask for it. If you don't get it, you can adjudicate on that basis and don't accept that sloppiness on both sides means you're stuck with it. The court said clearly that it doesn't. So the payment regime resets with every application cycle. Our next case is between Construction Musi and Davis Construction. This is another case from the TCC, this time in September 25th, and it's a straightforward story about a subcontractor who did everything right and then had to fight for it anyway. But gladly they won. The parties here are construction Musi, who are being employed by Davis Construction as a subcontractor on two separate subcontracts for groundworks and drainage on the same site in Epping in Essex.
Jacob Austin 00:10:59 Davis Construction stopped paying. Musi stopped working and ran two separate adjudications, one under each subcontract claiming the unpaid sums. The total sum across both adjudications was just over £261,000 plus interest. Davis tried to resist enforcement on every front they could find. On the groundworks adjudication, they argued there had been a breach of natural justice, specifically that the adjudicator had relied on a document submitted by Musi that Davis claims they'd never been given the chance to properly respond to on the drainage adjudication. They argued that the adjudicator lacked jurisdiction because the dispute was essentially the same as the one already decided in the groundworks adjudication, and on top of that, they argued the adjudicator had gone into the second adjudication with his mind already made up. Having decided the first one the same way, the court dismissed all of that and enforced both decisions on the natural justice point. The court decided that even if that disputed document had been completely ignored, that the direction of the adjudicators decision was already clear from the rest of the evidence. Removing that one document wouldn't have changed the outcome.
Jacob Austin 00:12:22 Then they decided that on the jurisdictional challenge, deciding a similar issue under a related but separate contract is not the same dispute. And reviewing the adjudicators documents, it was clear that they'd reviewed the evidence properly, so there was no pre determination involved. Davis had simply chosen not to participate or provide evidence of their own, which, as the court sees it, is Davis's problem, not the adjudicators. So Muzzy got their money. So why does this matter to you? This throws some light on the kind of fun and games that a contractor might play when they receive an adjudication award, and they've lost. They're looking for any reason here to delay payment or get them off the hook altogether. Be it a procedural issue, a document, jurisdiction argument, allegations of bias, anything that might get the enforcement thrown out or delayed in court so the money sits with them. The court's approach was consistent with what we see all the time. The bar for resisting enforcement on natural justice or jurisdiction grounds is really high. The court also takes a dim view on tactical arguments that have got no real prospect of success.
Jacob Austin 00:13:39 Those, though, will just dismiss and they will enforce that same pay now, argue later principle that adjudication is built around. All this means if you've run a clean adjudication, you've served your notices properly and the adjudication resulted in a considered decision. You're in a strong position to get it enforced, so don't be put off by the noise if your contractor is kicking up a fuss about it. Now finally on to case number four, which is between RDN, JM Limited and Purpose Social Homes Limited. This is the shortest story in today's episode, but it might be the one that stings the most if it happens to you, in this case RDN, JM, or a contractor. And they'd been involved in a series of adjudications with purpose social homes on residential development in Harrogate. This was under a JCT minor works contract. The two parties clearly weren't getting on because this case is about the fifth adjudication, by which point the relationship would be broken down completely. When R and JM applied to the RCS to nominated adjudicator, they made a misstatement in the application form, specifically about whether a potential adjudicator had a conflict of interest.
Jacob Austin 00:14:59 Purpose. Social. Holmes challenged it, and the court found that Purpose social homes had a real prospect of successfully arguing that the false statement on the nomination form was either deliberate or reckless, and refused to enforce the adjudicators decision. So what we're seeing here is R and JM had been through four previous adjudications with the same client. Presumably they've got a valid payment claim. They go to the effort of running a fifth adjudication. Then they lost the ability to enforce the adjudication decision, not because their claim was wrong, but because of what was written on the form when they applied for the adjudicator to be appointed. Now, the court didn't decide that the statement was deliberately false, but it prevented R and JM from getting summary enforcement, which is the quick route to getting a court order that ensures your payment gets made. So instead of walking out of court with a check, they're heading to a full contested hearing now. The lesson from that is an uncomfortable one for IRA and JM. Adjudication is powerful, but you've got to get the process right.
Jacob Austin 00:16:09 And that misstatement on the adjudicators nomination form can render the whole nomination and therefore the decision tied to it unenforceable. That means that filling out nomination paperwork has to be accurate. It has to be thorough. It has to be exact. If you have particular concerns about a certain adjudicator, a conflict of interest, a prior connection to the other side, prior connection to you, then raise them properly and through the right channels. What you can't do is make a statement that you can't stand up and swear by. Of course, this applies equally in the opposite direction. If the main contractor is running adjudication against you, and you think there's genuine grounds to believe there was a problem with that same nomination process, there's a real conflict of interest, was there, but it wasn't disclosed. That's a legitimate avenue to explore, but do it with legal advice. Like everything in adjudication, if you're going to raise it, you need to have substance to back it up. Now, from those four cases, what are they actually telling us? And how do you use those lessons to protect yourself? It starts with your payment process.
Jacob Austin 00:17:28 Track it in writing, track it on a spreadsheet, track it on your calendar, but do it in writing. Do it in a way that's going to remind you of what the due date is, so that you can note whether the notice has arrived on time, whether a painless notice has arrived on time, whether the cash has arrived on time, what's going to work for you to measure that? Is it reminders that pop up on your phone? Whatever's going to work, and you know what you're going to respond to make it happen. And the next step is then doing something about it. The first step doesn't have to be difficult. It's an email objecting to the late payment notice. You aren't giving me the detail behind this payment notice making it invalid. It's an email saying there's no pay less notice. Create the paper trail. Creates the record. Creates something you can adjudicate about. When we think about termination. My advice is don't use the other mechanisms in your contract and be sure to do that first.
Jacob Austin 00:18:28 Termination is really tricky and it's not something you would do lightly, and it's certainly not something you do without issuing a seven day notice and suspending your progress. A free falling program because you're not doing your work because they haven't paid you. Puts the contractor's own time pressure back on themselves. It's incredibly effective on the point and enforcement of adjudication decisions. If you win and the other side tries to resist. Understand all the precedents before this point. Reinforce the court's position of paying now and arguing later. Adjudication was designed as a quick process to help cash flow. And when you couple that precedent with the knowledge that the bar for kicking out an adjudicators decision is really genuinely high. So use that knowledge. Be comforted by it, and don't be put off by tactical noise from the contractor trying to make you think that you've cocked the process up. So petition for enforcement as soon as you can and do it confidently. And final learning point. Of course, if you are going to nominate an adjudicator. Fill the bloody forms outright.
Jacob Austin 00:19:38 And if you can't trust yourself to do it, pay somebody to do it for you. And there we have it. Four key cases and four key decisions from the last six months Brought to you in the form of today's case law coffee break, for you to take away and apply to your business. I hope that's given you something useful. And if it genuinely has, and then I really need your help to share the show and pass that value on to somebody else who'd benefit from hearing it, so that I can help as many people as possible. And thanks for tuning in to the Subcontractors Blueprint. If you want to learn more, then you can find us at www.subcontractorsblueprint.uk and we're also on all your favourite socials again at @SubcontractorsBlueprint. Remember miss the contract detail and the commercial risk falls on you. Thanks all. I've been Jacob Austin and you've been awesome.
