Henia Investments Inc v Beck Interiors Ltd [14.08.15]

Technology and Construction Court (TCC) considers the effect of the Housing Grants, Construction and Regeneration Act 1996 (as amended) (HGCRA) on payment provisions and claims for liquidated damages where no extension of time is agreed.

Implications

Sections 110 and 111 of the HGCRA were drafted to aid parties to construction contracts. However, they have in reality led to uncertain, unwieldy contracts.

This decision highlights a tension between the need for contracts to comply with statutes, but also to be drafted in a way which does not promote uncertainty and litigation. It also demonstrates that parties should comply with contractual provisions relating to payment if they wish to avoid the risk and expense of litigation.

Mr Justice Akenhead commented that the failure of the contract administrator (CA) to issue interim certificates on time had led to the sum due being deemed to be the amount applied for by the contractor. This had caused a significant amount of litigation, both on adjudication enforcement claims and in proceedings under Part 8 of the Civil Procedure Rules.

Background

The Claimant (Henia) employed the Defendant (Beck) to carry out works to a property. The contract incorporated the JCT Standard Building Contract without Quantities 2011 (as amended).

The contract provided for Henia to make interim payments to Beck on a monthly basis up until completion in September 2014. In respect of any interim payment, Beck were to make an interim application to the appointed CA stating the sum Beck considered due and the basis for calculation.

The contract appears to have been drafted to comply with sections 110, 110A and 111 of the HGCRA. The purposes of the HGCRA are to encourage cash flow to parties to construction contracts, and to establish an agenda for adjudication arising from disputes arising from interim payment entitlements.

Completion was delayed by 11 months without an agreement in place confirming Beck were entitled to an extension of time. In September 2014 the CA issued a non-completion certificate.

On 28 April 2015 Beck made an interim application in respect of the payment it asserted was due on 29 April. The application was six days late. No application was made in May. On 4 June, the CA issued an interim certificate, purportedly in accordance with the interim payment provisions, stating Henia were to make a net payment to Beck.

On 17 June 2015 Henia issued a pay less notice stating there was in fact “£0” owed to Beck. This was based on the interim certificate and Henia’s entitlement to liquidated damages for the period after the works were due for completion.

Henia sought clarification from the Court on the following issues:

  • Was Beck’s April interim application valid in respect of the payment due date?
  • Was Henia’s notice a valid pay less notice?
  • Even though Beck had not applied for an extension of time, would a failure of the CA to make a decision in respect of such an application render the CA’s non-completion certificate invalid, or prevent Henia from recovering liquidated damages?

Decision

In relation to these issues, Akenhead J held as follows:

  • The interim application was filed six days late and could not be described in “substance, form and intent” as a valid interim application in respect of either the April or May payment due date.
  • Henia’s pay less notice was valid. Akenhead J referred to the contract clause providing that the pay less notice had to specify “the sum that [Henia] considers … due to [Beck] at the date the notice is given and the basis on which the sum has been calculated”. As a matter of contractual construction, there was nothing in the contract preventing Henia from challenging the CA’s certified valuation or the amount claimed in the interim application.
  • On liquidated damages, no claim would be prevented where the CA had issued a non-completion certificate and the contract employer had notified the contractor before the date of the final certificate that he may require liquidated damages, in accordance with the contract.