A recent TCC decision has confirmed the requirement for payment applications to be clear and unambiguous if contractors are to have the benefit of the deeming provisions of the Construction Act as to payment. The case follows a similar decision last month where the court rejected an attempt to argue that the informal updating of a previous payment application amounted to a fresh application (see our earlier Law-Now here). The present decision also provides clarification with regard to a number of related points arising under the payment provisions of the JCT Standard Building Contract.
Henia Investments Inc v Beck Interiors Limited
Henia and Beck entered into a fitting out and construction contract for a property in London. The form of contract was JCT Standard Building Contract without Quantities 2011 with amendments. Interim payment due dates were the 29th of the month (or nearest Business Day). The works were delayed by 11 months and counting and there had been no decision by the Contract Administrator (the “CA”) as to whether Beck was entitled to an extension of time.
On 28 April 2015, Beck submitted its Interim Application for Payment no. 18 to the CA claiming circa £2.9 million. The contract required Interim Applications to be submitted 7 days before the due date and this application was therefore 6 days late in relation to the 29 April due date. Beck did not issue a further Interim Application for May. The Interim Certificates No 18 and No 19 issued by the CA against the 29 April and 29 May payment due dates were also issued late. In such circumstances, the contract provided that the amount of any Interim Application made by the contractor would fall due for payment subject to any Pay Less Notice issued by the employer.
On 17 June 2015, Henia issued a Pay Less Notice stating that there was £0 due to Beck based on the previous valuation and Interim Certificate No 19 and its entitlement to liquidated damages for 40 weeks delay.
Beck argued that its Application for Payment no. 18 submitted on 28 April 2015, although 6 days late in relation to April’s interim payment, was nonetheless a valid application for May. Beck then argued that the amount of its application had become due as a result of the delayed issue of the CA’s Interim Certificate and, finally, that Henia’s Pay Less Notice of 17 June 2015 was invalid. Beck commenced adjudication proceedings and in parallel Henia sought declarations from the TCC as to the following:
- Was the Application for Payment no. 18 issued on 29 April an effective or valid application for payment in respect of the 29 May 2015 payment due date?
- Was Henia’s notice dated 17 June 2015 an effective or valid Pay Less Notice?
- Would a failure by the CA to make a decision in respect of a contractually compliant application for an extension of time prevent Henia from deducting and/or claiming liquidated damages?
Mr Justice Akenhead agreed with Henia. On the facts, he held that the Interim Application was not issued in respect of the 29 May 2015 payment due date and thus could not stand as the default payment notice in place of the certificate that had been issued late by the CA. The judge emphasised the importance of being able to ascertain whether a document was an Interim Application under the terms of the contract given the consequences that could follow from it. He said that the document relied upon as an Interim Application “must be in substance, form and intent an Interim Application stating the sum considered by the Contractor as due as at the relevant due date and it must be free from ambiguity”. This is so that the parties “know what to do about it and when”.
As to the other contentions:
- Mr Justice Akenhead confirmed that there is nothing in the wording of the JCT SBC that prevents an employer from legitimately challenging either the amount certified in the Interim Certificate by the CA or the amount claimed within the Interim Application. Pay Less Notices can “not only raise deductions specifically permitted by the Contract and legitimate set-offs but also deploy the Employer’s own valuation of the Works.”
- The judge also confirmed that, under the JCT SBC at least, a failure on the part of the CA to operate the extension of time provisions (for example, by assessing applications for extension of time made by the contractor) did not operate as a condition precedent to the employer’s entitlement to deduct liquidated damages. Whilst acknowledging the potential for short-term unfairness to result to the contractor (pending any decision of an adjudicator or final resolution through court or arbitration proceedings), such unfairness was not sufficient to require the clause to be construed as a condition precedent.
Conclusion and implications
This case provides further evidence of parties seeking to capitalise on the robust approach presently being taken by the TCC to the deeming provisions of the Construction Act as regards payment. Beck’s attempt to characterise an Interim Application submitted late for one month as a valid application for the following month was motivated by the late submission of the CA’s Interim Certificate and the potential for Beck’s application to be the amount due in the absence of a certificate.
In rejecting this attempt the court has made clear that:
- Payment applications should be clear and unambiguous if they are to attract the deeming provisions of the Construction Act. This confirms the comments made recently by Coulson J in Caledonian Modular v Mar City Developments (reported in our previous Law-Now) that, “if contractors want the benefit of these provisions [of the Construction Act], they are obliged, in return, to set out their interim payment claims with proper clarity.”
- Pay Less Notices allow employers to deploy their own valuation of the works as well as to raise deductions and set-offs (confirming the view already held by many in practice).