Adjudication under the Construction Act – a case on the residential occupier exception and contesting the validity of a payless notice

In the recent case of RBH Building Contractors Ltd (“RBH”) v Ashley James & Anor, the Court:

• grappled with the meaning of a residential occupier and the application of the section 106 exception in the Housing Grants, Construction and Regeneration Act 1996 (the Construction Act);
• applied a broad interpretation of the requirements for a payless notice; and
• confirmed the position on the Court’s willingness to interfere with the adjudicator’s decision in relation to fees.

The case raises some interesting points around the exemption and provides some useful guidance to practitioners on an area infrequently considered by the Courts.

Background

The case concerns a construction dispute between RBH, a building contractor, and Mr and Mrs James, who engaged RBH to manage and supervise the construction of a luxury house in Devon. The contract was made orally in early 2022, and the relationship broke down in 2024, with RBH ceasing work and submitting a final payment application – which the James’ disputed.

RBH commenced a ‘smash and grab’ adjudication, seeking payment on the basis that no valid payless notice had been served, and the adjudicator found in RBH’s favour. The James’ did not pay the sum awarded to RBH, so RBH sought summary judgment to enforce the decision.

The James’ resisted enforcement on the basis that the adjudicator lacked jurisdiction and retaliated with their own Part 8 proceedings, seeking declarations that the James’ payless notice was indeed valid. The Court heard both simultaneously.

The Case and Key Arguments – RBH’s application for Summary Judgment and the Residential Occupier’s Exception

Under section 106 of the Construction Act, the statutory right to adjudicate does not apply to a construction contract with a residential occupier, which the Act simply describes as “a dwelling which one of the parties to the contract occupies or intends to occupy as his residence”.

On the facts, it was accepted that the James’ had never occupied the house, at the time of the trial had no intention of occupying it and were in the process of trying to sell it. However, the James’ argued that, at the time the contract was entered into (a key point which we will turn to later), it was their intention to occupy the house and that they subsequently changed their minds. The James’ brought evidence of their previous homes’ sale, stamp duty paid, a statement from the architect around the house being designed for their personal use cases, and other factors such as registration on the electoral roll and with local GPs to try to show their intention to occupy the house.

However, RBH pointed to a commercial loan including declarations that the James’ did not intend to use the property as a residence, and planning documents which indicated the property was for investment purposes – a much more commercial intent. They also highlighted the James’ intention to let the property ‘Airbnb style’ for some 13 weeks of the year as the property was situated in a popular spot for holidaymakers.

Referring back to the (limited) previous authorities on the point, the Court found that the key factor was the James’ intention at the time the contract was entered into. The fact that they had since changed their mind was immaterial. It was therefore a question of considering the competing evidence.

Here, the fact that this was an application for summary judgment, as opposed to a full trial, appears to have been a decisive factor. This meant that the James’ needed only to show that they had a real prospect of success with their residential occupier argument. Whilst the Court did find that the commercial loan documents required explanation, it considered that the James’ did, on balance, likely intend to occupy the home, at least enough to satisfy the test of a “real prospect of success”. As such, RBH failed in its attempts to enforce the decision.

The Case and Key Arguments – the James’ Part 8 Claim and the validity of the payless notice

Unlike the relatively novel arguments over what constitutes a residential occupier, the James’ Part 8 claim covered some well-trodden ground; namely whether the notice issued in response to RBH’s payment application was a valid pay less notice for the purposes of the Construction Act.

The notice from the James’ included the wording “[we] intend to withhold payment of £663,016.16 and accordingly intend to make payment of £0”, followed by a list of reasons which outlined where they considered each head of claim from RBH to be lacking in evidence or unpaid by RBH and therefore not falling due under their contract.

The Court found this to be sufficient: any reasonably objective reader with knowledge of the works would have understood the points raised and reasons given; a full calculation was not necessarily required. The payless notice was found to be valid and no sums were due to RBH. The Part 8 claim succeeded in full. The Courts have given a very clear indication that they will not take an overly restrictive view of what constitutes a valid payless notice, not least because of the potentially draconian impact on the paying party. It is therefore unsurprising, to say the least, that the Court found for the James’ on this point.

This is not a new or novel position, and it is difficult to see why the adjudication found otherwise.

Payment of the Adjudicator’s Fees

The adjudicator had determined that the James’ were responsible for his fees and expenses in the sum of £9,638 plus VAT. The Court was not persuaded by the James’ arguments to reverse the adjudicator’s decision on fees, despite succeeding on the above issues.

This case also reiterates the position that the Court will not change an adjudicator’s decision on fees, being regarded as an ancillary decision not affected by the adjudicator’s jurisdiction in the actual subject of the dispute. The bottom line is that their fees are not subject to review, no matter the surrounding context, according to the limited number of decisions on this point and how the Scheme for Construction Contracts (which was applicable in this case) treats the adjudicator’s entitlement to payment of fees.

Key Takeaways

The main interest in this case, and the legal development, is in relation to the exemption from the adjudication regime. Parties should be aware that the intention to occupy a property as a residence at the time of contracting can exclude the statutory adjudication regime, even if that intention changes during the course of the works. To avoid the potential fact-intensive inquiry, parties would be well advised to ensure that their intentions are clearly documented at the outset.

The case also serves as an ever-helpful reminder that the Court will apply a broad interpretation of what a payless notice requires: overly technical challenges to such notices are unlikely to succeed if the notice is reasonably clear.