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The Technology and Construction Court in RBH Building Contractors Ltd v James [2025] has provided clarity regarding the validity of pay less notices, the residential occupier exception in the Construction Act, and the ability to overturn adjudicators' decisions on fees.
RBH Building Contractors Ltd (RBH) was contracted to provide project management services in relation to the construction of a house for Mr and Mrs James (the Jameses). The project was not completed, with work ceasing in April of 2024, due to a dispute between the parties.
In November 2024, RBH served an application for payment on the Jameses valued at £663,016.16. The Jameses responded with a pay less notice claiming that no sum was due. RBH subsequently referred the matter to adjudication. RBH pursued the adjudication claiming the pay less notice was invalid, often referred to as a "smash and grab" adjudication.
The Jameses argued that the adjudicator did not have jurisdiction. There was no written contract meaning the Scheme for Construction Contracts regulations would normally apply. However, the Jameses argued that as they intended to live in the property after completion, they benefited from the exemption for residential occupiers under section 106 of the Construction Act. This would mean the contract would not be subject to the adjudication referral right under the Construction Act or Scheme. The adjudicator rejected this argument, also deeming the pay less notice invalid, and ordered the Jameses to pay the full sum applied for by RBH, along with the adjudicator's fees and expenses. The Jameses refused to pay and RBH brought the summary judgment action.
In determining whether the adjudicator's decision should be enforced, the court considered whether the Jameses' defence had a real prospect of success. The defence gave rise to two principal questions, (i) whether the Jameses were residential occupiers, a factual determination, and (ii) whether the pay less notice was valid, a point of law.
The court was satisfied that the Jameses had a real prospect of establishing the residential occupier exception, which applies to operations on a dwelling which a party "occupies or intends to occupy as his residence". The judge noted that a common-sense analysis was required in determining the Jameses' intention at the time of contract conclusion. They sold their other house and lived on site during the development. The property was designed to their personal specification. They registered with the local GP and registered the address on the electoral roll. These matters evidenced an intention to be resident at the property.
In interpreting the validity of the pay less notice, the court considered how the notice would be interpreted by a "reasonably objective reader who had knowledge of the contract works". The notice contained bullet points detailing the aspects of the payment application that were rejected and the reason for the rejection. The court avoided a restrictive interpretation due to the potential "draconian consequences" of invalidating the notice on an "artificial or contrived basis". The pay less notice was deemed valid as it was sufficiently clear as to the basis of the withheld sum.
In dismissing the enforcement action, the court did not consider it within its power to make a ruling as to the adjudicator's fees. The court followed previous case authority that an adjudicator's decision on payment of fees is final. The Jameses were found liable for the adjudicator's fees.
Key takeaways
- The court will not interpret a pay less notice in an onerous manner; a reasonable and objective approach will be followed.
- Clarity has been provided on the application of the residential occupier exception.
- The court is reluctant to intervene with adjudicator's decisions on fees.
This article was co-authored by Trainee Ruaridh Brown.
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