The recent case of Henia Investments Inc v Beck Interiors Ltd [2015] EWHC 2433 (TCC) emphasises the need for notices to be issued in strict compliance with the contract.  Of particular interest are those parts of the judgement that relate to applications for interim payments. The Court stated that applications for interim payment must identify which contractual entitlement to interim payment (e.g. which monthly assessment date or milestone) it relates to. An application that the fails to do so will be invalid.

The facts

Henia Investments Inc (“the Employer”) entered into an amended JCT Building Contract (2011 Without Quantities edition) with Beck Interiors Ltd (“the Contractor”).  Turner & Townsend was appointed to act as the contract administrator (“the CA”).  

The works were intended to complete in September 2014 but were delayed by 11 months.  In September 2014 the CA issued a non-completion certificate and despite the Contractor having made an application for an extension of time for completion of the works, the CA did not grant an extension of time.  Subsequently, the following events took place:

28 April 2015   The Contractor submitted its application for interim payment 18.

6 May 2015      The CA issued interim payment certificate 18.

4 June 2015     The CA issued interim payment certificate 19 (the Contractor had not submitted an interim application for payment 19).

17 June 2015   The Employer issued a pay less notice, claiming that nothing was payable to the Contractor (partly due to the fact that the Employer had a claim for liquidated damages for delay).

29 June 2015   The Contractor referred the payment dispute to adjudication.

Overall, the adjudicator’s decision was in the Employer’s favour.  However, following the adjudication the Employer sought certain declarations from the Court.  More specifically in relation to the following questions:

  • Was the Contractor's Application No. 18 issued on 28 April 2015 an effective/valid interim payment notice in respect of the 29 May 2015 payment due date?
  • Was the Employer's notice dated 17 June 2015 an effective/valid pay less notice?
  • Would a failure on the part of the CA to make a decision in respect of a contractually compliant application for extension of time render the CA's Non-Completion Certificate invalid or otherwise prevent the Employer from deducting and/or claiming liquidated damages?

The decision

The need to issue a clear and unambiguous application for payment in time

An application must be clear from its form and intent that it is an application for interim payment.  In this regard, the terms of the contract were interpreted very strictly.  To be a valid payment notice under this specific contract, it had to:

  • be served more than seven days before the payment due date (interestingly, it was noted that this could lead to a contractor serving all of its payment notices at the outset of the project – although this would be ill-advised);
  • state the sum the contractor considers will become due (which can anticipate works to be carried out before the payment due date); and
  • be for the sum due at the relevant date, being the dates set out in the contract (the notice must identify clearly which payment/date it relates to).

The content of a pay less notice (obiter)               

The pay less notice must state the sum considered to be due at the date of the notice and the basis of the calculation.  It is crucial that the pay less notice is served within the timescales set out in the contract.

Interpreting the contract with regards to deducting liquidated damages (obiter)

Under the terms of the contract, the Employer’s entitlement to levy liquidated damages was subject to two conditions precedent:

  1. the CA had issues a non-completion certificate; and
  2. the Employer had given notice before the date of the final certificate.

In this case, the fact that the CA did not execute the extension of time provisions properly did not preclude the Employer from deducting liquidated damages.    

Comment

Contract administrators and repeat employers will already be aware of the need to ensure that pay less notices are sufficiently clear and that they are compliant with the terms of the contract.  However, it is probably inevitable that there will be times when employers will fail to consider a payment application and issue a compliant pay less notice in time.  As such, this judgement will be of interest to employers for whom it could offer a secondary basis upon which to assert that it is not required to make an interim payment.  Conversely, this case suggests that contractors seeking payment should be concerned to ensure that they are both entitled to make an application for payment and that such application includes all of the information required to ensure that its validity is beyond doubt.