We recently reported on three cases concerning the effect of failures to serve payment and pay less notices under the JCT Design and Build form of contract (click here for our last Law-Now on the topic) .  A recent TCC decision has considered a further case involving an overlooked payment notice, but this time with the employer contesting the validity of the contractor’s payment application. The court’s decision contains a number of useful findings as to the application process under the JCT form and the legal requirements for a valid payment application.

Leeds City Council v Waco UK

Leeds City Council (the “Employer”) engaged Waco UK (the “Contractor”) pursuant to a JCT Design & Build Contract, 2005 Edition, Revision 2 2009 (with amendments).  The contract contained detailed provisions governing the Contractor’s entitlement to make applications for interim payment.

Before Practical Completion, the Contractor made applications for interim payments at approximately monthly intervals.  The relevant JCT clause required those applications to be made “on” the dates set out in a payment calendar included with the contract particulars. The Contractor’s applications were not made strictly in accordance with the terms of the contract and were often a few days late.  Nevertheless, the Employer’s agent and contract administrator, Jacobs, ignored these irregularities and the applications were duly paid by the Employer.

Following Practical Completion, applications for interim payments were to be made “at intervals of 2 months (unless otherwise agreed)” (clause 4.9.2 of the contract).  Again, the Contractor’s applications were not made on the correct dates and were submitted sometimes early, sometimes late. 

On 22 September 2014 (post-Practical Completion) the Contractor made an application for payment 6 days before the bi-monthly contractual date specified by clause 4.9.2.  The Employer did not serve a payment notice and did not pay the application.  The Contractor went to adjudication and obtained a decision in its favour but, again, the Employer did not pay.  The Contractor brought enforcement proceedings and the Employer applied for a declaration that the adjudicator’s decision was wrong on the basis that the Contractor’s application was invalid. 

The court found in favour of the Employer. The requirement for an application to be made “on” a given date meant that the application was required to state the financial position and the total value of the work properly executed up to that date (the “Valuation Date”). The Contractor’s application was made 6 days before the Valuation Date and was therefore invalid.

The court also made a number of other notable findings:

  • There was an implied term requiring the Contractor to submit the application within a reasonable time from the Valuation Date, which the court noted would only be “a matter of a few days”. There was no such leeway, however, for the application submitted prior to the Valuation Date (which the court found to be invalid).
  • The court commented on a course of dealing established between the parties by which Jacobs would accept a valuation made three to four business days later than the Valuation Date. Jacobs’ role as the Employer’s agent and contract administrator meant that the Employer could not subsequently go back on this course of dealing and claim that such applications were submitted too late.
  • As the Employer’s Agent, Jacobs was empowered to “act for the Employer under any of the Conditions” of the Contract. Although this did not extend to amending the contract, the words“unless otherwise agreed” in clause 4.9.2 of the contract meant that Jacobs had power to vary the Valuation Dates following Practical Completion. The absence of these words in respect of Valuation Dates prior to Practical Completion meant that Jacobs had no such power in relation to those dates.

This decision shows that parties to construction contracts continue to be caught unawares by the requirements of their payment provisions. The Employer in the present case was able to escape the consequences of failing to submit a payment notice by successfully challenging the validity of the Contractor’s payment application. The court’s decision is likely to encourage other employers to do likewise when faced with attempts by contractors to claim for payments deemed due in the absence of notices.

Reference: Leeds City Council v Waco UK Ltd [2015] EWHC 1400 (TCC)