[2016] EWCA Civ 990 (Court of Appeal)

This was an appeal by Balfour Beatty, against an earlier TCC decision which ruled that it had no entitlement to interim payments after the contractual date for practical completion. Grove was a property developer which had employed Balfour Beatty to design and build a hotel and serviced apartments at Greenwich Peninsular in South East London. The contract was the JCT standard form Design and Build Contract, 2011 edition, with a series of amendments.

The parties agreed on periodic payments to be made in accordance with a set of provisions called "alternative B". Subsequently, this was amended by the parties, who agreed on a schedule of 23 valuation and payment dates covering the period from September 2013 to July 2015 ("Tumber Schedule"). The completion date was specified as 22 July 2015 in the Contract. As the works were delayed, completion did not take place by that date. On 21 August 2015, Balfour Beatty issued an application for payment number 24. On 15 September 2015, Grove issued a payless notice in respect of that application which deducted 2 million, reflecting an extra-contractual payment of 2 million previously made by Grove. Further, Grove maintained that liquidated and ascertained damages for delay exceeded and extinguished any payments due to Balfour Beatty in respect of work done. Consequently, Grove asserted that Balfour Beatty had no further entitlement to interim payments. Balfour Beatty disagreed.

Mr Justice Stuart-Smith held that Balfour Beatty had no contractual right to make or be paid for an interim application made while the works were ongoing and after an agreed payment schedule had expired. Balfour Beatty appealed, saying that they:

(i) had a contractual right to interim payments after the 23rd valuation;

(ii) were able to recover interim payments after the contractual completion date under section 109 of the HGCRA; and

(iii) the parties had reached a separate fresh agreement for interim payments after valuation 23.

By way of a reminder, section 109 provides that a party is entitled to interim payments for "any work" under a construction contract. In the absence of such agreement, a party is entitled to interim payments under the Scheme for Construction Contracts. The CA agreed with Mr Justice Stuart-Smith. Lord Justice Jackson held that the Contract as amended by the Tumber Schedule provided for interim payments to stop at the contractual date for practical completion. The parties had agreed a hybrid arrangement for their timetable which had elements of alternative B and a timetable of their own invention. This timetable ended on the contractual completion date. After valuation 23, the parties had made no agreement as to whether or how they would deal with interim payments after that date. There was no document or agreement that said when valuations should be made, when notices should be served or when payments should be made. Given that these matters were an essential part of any bargain between the parties, it could not be said that the parties had clearly intended payments to continue.

Lord Justice Jackson further held that the Contract as amended by the Tumber Schedule did satisfy the requirements of section 109. Section 109(1) provides general coverage of work under construction contracts which, except in very short projects, is subject to a regime of interim payments. Further, he held that the reference to "any work" under section 109 did not mean "every single piece of work" under a construction contract. Section 109(2) gave parties considerable latitude as to the system of interim payments they might agree. Here, as the parties had agreed a regime of 23 interim payments stretching right up to the date specified for practical completion, the Contract complied with section 109. The Contract also satisfied section 110 as it included an adequate mechanism for quantifying interim payments. As the HGCRA applied, there was no need to imply the relevant payment provisions from the Scheme.

Finally, Lord Justice Jackson held that there was no "fresh" contract for monthly interim payments after the payment schedule expired. The parties had never agreed the terms upon which interim payments would be made. There was no agreement outlining the dates for valuations, notices and payments. Again, as both parties had treated those matters as essential elements of any contract, the Judge found it "impossible" to derive any fresh agreement between the parties from their conduct or their correspondence.

Balfour Beatty did suggest that to interpret the contract in this way created a "commercial nonsense". The parties could not have intended that, if practical completion were delayed, Balfour Beatty would have to wait for payment until the final payment date. Accordingly, the court should construe the contract as amended by the Tumber Schedule as providing a continuing entitlement to interim payments after July 2015. The CA disagreed, noting that the express words used made it clear that the parties were only agreeing a regime of interim payments up to the contractual date for practical completion. There was no provision for interim payments after July 2015. The CA considered that this was a classic case of one party making a bad bargain and the CA would not (and could not) use the canons of construction to rescue one party from the consequences of what that party had clearly agreed.