Pay less notices and breaches of contract: Construction case update

by | Nov 20, 2017 | Blog Posts

Over the last couple of weeks, the Courts have published two rather helpful construction law cases. The first in relation to breaches of contract, and the other regarding pay less notices. We take a quick look at both, below.

Interserve Construction Ltd v Hitachi Zosen Inova AG [2017] EWHC 2633

The case of Interserve Construction Ltd v Hitachi Zosen Inova AG [2017] EWHC 2633 (TCC) was about the termination of a contractor’s employment. Judge Jefford concluded that a contractor should be given the opportunity to remedy a breach before the contract (and his employment) were terminated.


The contract was between Hitachi (the main contractor) and Interserve (the subcontractor). The relevant clause (clause 43) in the contract stated that Hitachi:
“…may (at its absolute discretion) notify the Contractor of the default and if the Contractor fails to commence and diligently pursue the rectification of the default within a period of seven (7) Days… terminate the employment of the Contractor under the Contract.”
Hitachi decided to immediately terminate Interserve’s employment due to an alleged failure to proceed diligently with the works. It argued that it had absolute discretion to do so pursuant to the above clause. The Court disagreed with Hitachi’s approach and effectively overruled the consideration that Hitachi had absolute discretion.

Court’s decision

The Court states that, in order for Hitachi to terminate the contract, it must first invoke clause 43, allowing Interserve seven days to rectify the breach. The Court did not consider it optional. It went further to say that a failure to give notice pursuant to clause 43 meant that Hitachi were simply waiving the breach and right to rely upon it.
The lesson of this case is that, depending on the wording of the contract, not giving a party opportunity to remedy a breach, may itself be considered a breach of contract.

Adam Architecture Ltd v Halsbury Homes Ltd

In Adam Architecture Ltd v Halsbury Homes Ltd [2017] EWCA Civ 1735, the court confirmed that pay less notices need to be served if a party wishes to pay less than the sum applied for.  This is even in the circumstances where it is the final application for payment. This also applies where the contract has been completed or terminated.
Halsbury Homes is a property developer, Adam Architecture is an architectural practice. The developer retained Adam to design for the construction of 200 homes.
Halsbury informed Adam Architecture that it was going to use a different architect. As a result, Adam Architecture submitted its final application for payment. Halsbury Homes failed to serve a pay less notice in response. Adam Architecture then issued adjudication proceedings and was successful on the basis that Halsbury Homes had failed to issue a pay less notice.
Halsbury challenged the decision in the Court. They argued that the pay less regime did not apply. In the first instance in the High Court, Halsbury was successful. The Court’s reasoning was that Halsbury Homes’ obligations had been discharged as Adam Architecture had accepted their breach of contract.

Court of Appeal

On appeal again, the Court of Appeal rejected this. The Court of Appeal decided that the pay less regime still applied even after termination of the contract. The decision was based upon previous authorities including Rupert Morgan Building Services (LLC) Ltd v Jervis and Harding (t/a MJ Harding Contractors) v Paice in which the court considered it sensible that the pay less regime also applied to final applications for payment.
If you have a query relating to a construction contract or pay less notices, our construction disputes specialists can help. Call us today on 0800 9887756 for a free initial consultation.
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