Contractor’s interim applications for payment

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Henia Investments Inc v Beck Interiors Limited [2015] EWHC 2433 (TCC)

Facts

Henia was the Employer and Beck the Contractor under a JCT contract for works.  The contract had a detailed payment regime, intended to reflect the requirements of the Construction Act 1996 and its 2011 amendments.

The contract provided for interim payment due dates on a monthly basis.  The Contractor was entitled to submit interim applications for payment “not less than 7 days before the due date”.  The Employer could then issue its payment certificate “not later than 5 days after each due date”.  So far a typical form of contract.

The relevant monthly payment due dates were 29 April 2015 and 29 May 2015.

The Contractor submitted an interim application for payment on 28 April 2015.  The Employer then issued payment certificates 18 and 19, followed by a Pay Less Notice.

Several points came before the court, one of which was whether the Contractor’s interim application for payment dated 28 April 2015 was valid.  It is this question on which this article focuses.

Held

The court decided that the application for payment was not valid. This is because:

  1. the court had in mind the potential consequences of interim applications; that is, if the Employer does not respond with a proper payment certificate or pay less notice, the amount due becomes the amount set out in the Contractor’s interim application.  The court noted that this “could be way over what the CA would otherwise have certified or what is actually due to the Contractor”;
  2. therefore, there was a need for interim applications to be “free from ambiguity” and “clear that it is what it purports to be”;

In this case, the Contractor’s 28 April 2015 application was late for the 29 April 2015 due date (because it had not been submitted more than 7 days prior to the application date).  However, the application said on its face that it was “application no. 18”, which was the reference number for the 29 April 2015 due date.  The application did not state that it related to the 29 May 2015 due date in any way.  It also only covered work done by the Contractor up to 30 April 2015.

The judge noted that “there was at very least substantial room for confusion” as it was not clear to which due date the application was supposed to relate.  Accordingly, the application for payment was held to be invalid.

Comment

One of the reasons for the 2011 amendments to the Construction Act was to give “teeth” to a Contractor’s application for payment.  If the Employer fails to comply with the contractual certification mechanism, the sum set out in the Contractor’s application automatically becomes due.  This was a vast improvement over the 1996 provisions, in which a failure by the Employer to comply with the payment certification provisions did not have any real adverse consequences.  The trade off is that the Contractor’s interim payment application must be clear and unequivocal; otherwise the Employer will not be able to operate the contract mechanisms thereafter.

Interestingly, the judge noted that if the Contractor had acknowledged at the time of the application that the 29 April 2015 due date had been missed, and that the application was therefore intended to apply to the 29 May 2015 due date, then “one could easily reach a different view”.

Contractors should therefore take care to ensure that any interim applications for payment are clear and state specifically which due date they apply to.  If a due date has been missed, then this should be acknowledged.  This will ensure that all interim applications for payment remain valid.

It is notable that the court did not even entertain the idea that the application could be valid for the earlier date, because it was patently out of time.  This case is therefore a stark reminder that the courts have little regard for failures to comply with contractually explicit dates for compliance in respect of payments. 

For more information, help or advice please contact Rob Langley on 0191 211 7975 or [email protected].