Here the employer Jawaby sought a declaration concerning payment obligations under the contract it entered into with a contractor, Interiors and a related Escrow Agreement. In particular, the court had to decide whether there had been a default as defined by the Escrow Agreement. The contract was a JCT D&B 2011 with amendments and related to refurbishment of the Holborn Tower office block.
Under the terms of the contract, Interiors was to submit an interim application for payment on the 8th of each month. The first 6 applications proceeded in the same way, with Interiors submitting a valuation which was then the subject of a certificate of payment, which was generally substantially lower than the sum applied for, but which was supported by detailed spreadsheets showing how the works had been valued.
In relation to valuation no. 7, an 'initial assessment' was submitted in the sum of £2.3m. This was met with a certificate for a negative value, based on a valuation of the works of £1.6m but minus any breakdown or back up documentation. Jawaby contended that this constituted a valid pay less notice whilst alleging that Interiors had failed to serve a valid payment application. Interiors subsequently issued proceedings. Jawaby contended that valuation no. 7 did not describe itself as an application and did not apply for anything whilst Interiors asserted that there was no requirement for any particular labelling to make a document an interim application.
The judge noted that the presentation of valuation no 7 was materially different to the pattern adopted on previous occasions, in particular its description as an 'initial' assessment, and found that it did not comply with the requirements of the contract. Accordingly, it was not a valid application and no default event had occurred under the Escrow Agreement. Given the potentially draconian consequences for employers of failing to respond to a payment application, a departure from the accepted procedure which led to uncertainty concerning the status of the contractor's communication could not be accepted
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