The recent decision in Systems Pipework Limited (SPL) v Rotary Building Services Limited (RBSL) stresses that where a clause may have a draconian effect it is necessary for notification under the clause to include express reference to it and to comply clearly with the clause's purpose and requirements.
RBSL, the main mechanical and electrical contractor at the Davidstow Creamery in Cornwall, engaged SPL under a sub-contract dated 18 December 2014 to supply and install the steam, condensate, chilled water and cooling water systems at the site. Works were carried out between December 2014 and 31 January 2016 (the DC1 Works), and from 1 February 2016 to 30 May 2016 (the DC2 Works).
On 2 September 2016, RBSL provided SPL with a document described as "our final account assessment for the works carried out on the above project by your company". RBSL claimed that this was notification of their assessment of the proper amount due for payment in respect of the Final Account which would become binding absent SPL's timely challenge.
RBSL argued that this document was partly an assessment of the DC1 Works and partly a final account valuation of the DC2 Works (which had never been the subject of a final account claim from SPL). This distinction was not made in the document itself. SPL disputed RBSL's position as the document did not set out a figure to be paid by one party to the other.
SPL successfully brought an adjudication for sums it claimed were due for the DC2 Works and RBSL paid the sum awarded by the adjudicator.
RBSL launched its own adjudication seeking a declaration that SPL was bound by the final account assessment of 2 September 2016, following their alleged failure to challenge in writing within the contractually specified timescale. The same adjudicator found that SPL were not bound in so far as he had already awarded a higher total for the DC2 Works, but decided that SPL were bound by the remainder of the 2 September assessment.
In these proceedings SPL sought a counter declaration with the Court answering three questions:
1. Contractually, what notification was RBSL required to give SPL?
On its face the sub-contract appeared simply to require notification of the amount due for payment. However, the sub-contract drew distinction between the gross valuation and the sum due and payable.
RBSL argued the contract envisaged the assessment/valuation of the Final Account by [RBSL], not the identification of any particular payment which…would come later in the process. The Court disagreed and gave the provision its natural meaning requiring an assessment/valuation of the total amount payable less previous payments and any retention.
2. Did the 2 September 2016 assessment amount to notification under the sub-contract?
The 2 September 2016 assessment did not set out an assessment/valuation less the previous payments and retention to provide a figure of the sum due and so was not notification under the sub-contract.
Further, there was no reference in the 2 September 2016 assessment to it being notification of an amount due; the document and cover letter described it as a Final Account assessment and there was no identification of a particular sum due merely an assessment of the total value of works carried out. There was no reference to the relevant clause of the sub-contract.
3. If the 2 September 2016 assessment amounted to notification under the sub-contract, was it validly challenged?
This question was somewhat immaterial given Justice Coulson's answers to the earlier questions but, nevertheless, was considered in the judgment. Coulson J considered that there was the necessary challenge by way of SPL's notice of adjudication (served within the contractual time period).
A clause which may have a draconian effect, such as restricting a party's ability to challenge a sum claimed by the other, requires strict compliance and it should be clear to the recipient from the face of the document that it is intended to be a notice under that clause. In this case, the requisite notification under the relevant clause was not given, and, even if it had been the Judge considered that the subcontractor's notice of adjudication constituted a challenge in writing in any event.