Bias
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At first sight, clause 4.7A.2 appears to be a straightforward accounting mechanism. It allows an interim valuation to produce a balance in favour of the contractor and requires the subcontractor to serve a notice if it wishes to pay less.
The difficulty lies in what happens if that mechanism interacts successfully with the Housing Grants, Construction and Regeneration Act 1996.
Once the clause expressly contemplated:
"a balance due to the Contractor"
during an interim payment cycle, it became possible to argue that the usual payment roles had been reversed. In relation to that particular payment, the contractor became the payee and the subcontractor became the payer.
That argument set off a chain reaction.
The contractor contended that:
Once that position was reached, the contractor argued that the authorities in Grove, Davenport, Bexheat, Lidl and VMA applied.
The consequence was dramatic.
The dispute ceased to be a valuation dispute and became a jurisdiction dispute.
The subcontractor commenced an adjudication seeking decisions concerning measured works, ground conditions, culvert works, dayworks, contra charges, retention and loss and expense.
The contractor argued that these were not standalone claims. They were all matters that could previously have been raised through the payment machinery created by clause 4.7A.2.
If the contractor was correct, the adjudication was in substance a true value adjudication.
The problem for the subcontractor was that under the authorities following Grove, a party cannot normally commence a true value adjudication whilst an existing notified sum remains unpaid.
The issue therefore became:
Did clause 4.7A.2 create a statutory notified sum which had to be paid before the adjudication could be started?
That was the question which dominated the adjudication.
The parties devoted extensive submissions to:
The adjudicator ultimately concluded that the contractor's argument was correct.
In particular, he concluded that:
Having reached those conclusions, the adjudicator further found that the adjudication was, in substance, a true value adjudication that sought to revisit matters that could already have been addressed through the contractual payment machinery.
Applying Grove, Davenport, Bexheat and Lidl, he therefore concluded that he lacked jurisdiction to continue.
The result was unusual.
The adjudicator never determined the valuation dispute.
He never decided the claim.
Instead, the payment clause operated as a gateway issue. Once the clause was found capable of creating an unpaid notified sum, the adjudication was effectively stopped before the substantive dispute could be heard. The Subcontractor had to pay the adjudicator's fees to the point of resignation.
In short:
The clause converted what the parties thought was a valuation adjudication into a payment-jurisdiction adjudication. Once the payment argument succeeded, the valuation dispute could not even be reached.
This clause exposed a party to procedural risk.
Its significance was not that it changed the valuation.
Its significance was that it potentially changed who was the payer, who was the payee, whether a notified sum existed, whether payment had to be made immediately, and ultimately whether an adjudicator had jurisdiction to hear the dispute at all.
That is why a relatively short amendment resulted in the adjudicator resigning without deciding the merits of the case.
Clause 4.6.1 established when interim payments became due:
"the monthly due dates for interim payments shall in each case be the date 14 days after the relevant Interim Valuation Date..."
This clause fixed the payment cycle and therefore determined:
Without clause 4.6.1 there would have been no framework within which clause 4.7A.2 could operate.
Clause 4.7A.2 required any pay less notice from the subcontractor to be given:
"not later than 7 days before the final date for payment"
Accordingly, clause 4.7.1 was critical because it determined the final date against which the clause 4.7A.2 timetable was measured.
The contractor's argument depended on demonstrating that:
Only then could an alleged immediate payment obligation arise.
This was arguably the most important clause associated with clause 4.7A.2.
It required the Contractor to issue a Payment Notice:
"specify the sum that he considers to be or have been due at the due date and the basis on which that sum has been calculated."
The adjudicator concluded that because clause 4.7A.2 expressly required any balance due to the Contractor to be shown in the clause 4.7.2 Payment Notice, the two clauses had to be read together.
The contractor's entire jurisdiction argument depended upon treating:
If that analysis failed, the notified sum argument collapsed.
This was the clause at the centre of the dispute.
The crucial features were:
These provisions effectively mirrored a conventional payment notice/pay less notice structure, but with the payment direction reversed.
Clause 4.7A.2 expressly incorporated clause 4.7.7 by providing that:
"interest shall be payable by the Sub-Contractor"
if payment was not made.
This reinforced the proposition that the amendment was intended to create a genuine payment obligation, not merely a valuation exercise.
The contractor relied on this wording as further evidence that the parties intended interim balances payable by the subcontractor to be recoverable as debts.
Perhaps the most overlooked associated provision was the hierarchy clause within the Schedule of Amendments.
The adjudicator relied on the fact that the bespoke amendments were expressed to prevail over inconsistent standard form provisions.
This was important because the subcontractor argued that elsewhere in the standard JCT subcontract the payment provisions contemplate payments flowing only to the subcontractor.
The adjudicator rejected that argument because:
Without the hierarchy provision, there may have been an argument that clause 4.7A.2 conflicted with the remainder of the payment regime.
The real lesson is that the problematic clause was not clause 4.7A.2 alone.
The jurisdiction argument only worked because clause 4.7A.2 interacted with:
Taken together, those provisions arguably created a complete statutory payment regime in which:
That integrated payment regime is what ultimately led the adjudicator to conclude that the subcontractor had commenced a true value adjudication before satisfying an existing payment obligation, resulting in the adjudicator upholding the jurisdiction challenge and resigning.
The authorities fall into three categories:
These establish the principle that an unpaid notified sum must generally be paid before a true value adjudication can be pursued.
Principle
The Court of Appeal held that the payer must first comply with its immediate payment obligation arising from a valid payment notice regime before commencing a true value adjudication.
Why it mattered here
The contractors's entire jurisdiction challenge was built upon the proposition that clause 4.7A.2 created a notified sum of £153,310.74. If so, the subcontractor had to pay first and argue later.
ClauseWatch takeaway
The genesis of the "pay now, argue later, value later" principle.
Principle
Payment of the notified sum is a precondition to commencing a subsequent true value adjudication.
Why it mattered here
The adjudicator concluded that the alleged payment obligation remained unsatisfied when the adjudication was commenced.
This was the authority most directly supporting the proposition that the adjudication was premature.
ClauseWatch takeaway
Failure to pay can prevent the true value adjudication from getting off the ground.
Principle
Reaffirmed Grove and Davenport.
The right to commence a true value adjudication is subordinate to the immediate payment obligation.
Why it mattered here
The contractor relied upon Bexheat to support the proposition that compliance with the payment obligation was not optional or merely procedural.
ClauseWatch takeaway
The true value right is subjugated to the payment obligation.
In many ways this was the most important authority.
Principle
The Court held that the inquiry is one of substance rather than form.
The Court asked:
Could the matters now being pursued have been raised through the notice/payment machinery applicable to the earlier payment cycle?
If yes, Grove may apply.
If no, Grove may not apply.
Why it mattered here
The subcontractor argued that its referral was made up of multiple claims including Variations, contra-charges and loss and expense.
The contractor argued that all of those matters had already arisen and could have been raised during the relevant payment cycle.
The adjudicator accepted that argument.
The Lidl analysis therefore became critical.
Without Lidl, the subcontractor would have had a stronger argument that this was simply a different dispute.
ClauseWatch takeaway
It is the substance of the dispute, not the label attached to it, that matters.
Principle
Reaffirmed the Grove line of authority.
Importantly, the immediate payment obligation exists regardless of whether the receiving party has first obtained an adjudicator's decision enforcing payment.
Why it mattered here
The subcontractor's position effectively required the contractor first to obtain enforcement of the alleged debt.
The contractor argued that no such step was necessary.
The adjudicator accepted that the payment obligation could arise before any separate adjudication to recover the money.
ClauseWatch takeaway
A notified sum does not cease to be immediately payable merely because nobody has yet sued for it.
This was relied upon by the subcontractor.
Principle
The statutory payment regime requires payment of the notified sum.
However, the case involved the conventional payment structure where money was flowing to the contractor.
Why it mattered here
The subcontractor used Jawaby to argue:
A notified sum is something payable by a payer to a payee. It is not intended to create an interim payment obligation running in reverse from subcontractor to contractor.
This was one of the central legal objections to the contractor's analysis.
The adjudicator ultimately rejected that submission because of the bespoke drafting of clause 4.7A.2.
ClauseWatch takeaway
The case highlights why the amendment was so unusual: it attempted to use statutory payment machinery in a manner not normally encountered in interim payment cycles.
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1. Bias (B-Score)
How is risk structurally allocated?
Higher numbers indicate increasing allocation of risk to one party.
2. Exposure (E-Score)
What happens if the clause operates?
Higher numbers indicate greater real-world cost, delay, or dispute risk.
3. Enforceability (Enf.)
Is the clause likely to be upheld and applied as written?
Higher numbers indicate greater likelihood of legal effect.