What happens if the contract administrator consistently allows the contractor to submit interim applications later than the date specified in the contract? In Leeds City Council v Waco UK Limited  the court was asked make declarations in relation to the validity of two interim applications which it was argued had not been submitted on the correct contractual dates.
Leeds City Council (“LCC”) entered into a contract with Waco UK Limited (“Waco”) in the form of an amended JCT Design and Build Contract 2005 Edition Revision 2 2009. The date of possession of the site was 26 March 2012 and the date of practical completion was 28 March 2013.
In relation to the timing of the applications, the contract provided that the dates for interim applications up to practical completion were to be the first date one month after the possession date and then the same or nearest business date each subsequent month. Following practical completion, interim payments were to be made at 2 month intervals (unless otherwise agreed) and upon the later of the expiry of the rectification period or the issue of the notice of completion of making good.
An adjudicator had made a decision in favour of Waco that LCC should pay it £484,759.50 in respect of its Application 21 submitted on 22 September 2014 on the basis that LCC had not served the relevant notices in respect of it. LCC applied to court for a declaration that Application 21 was issued prematurely and there was therefore no entitlement to payment on the date it was submitted. Waco also issued Application 22 on 28 November 2014 in the same sum as Application 21. LCC did issue a payment notice in respect of this application stating that the amount due was nil. LCC sought a further declaration in the proceedings that this certificate was correct and no money was due under Application 22.
Jacobs UK Limited (“Jacobs”) was appointed as contract administrator and the Employer’s Agent under the contract. For almost all of the interim applications prior to practical completion, Waco made its applications a few days later than the date in the contract but they were still reviewed and certified by Jacobs.
Whilst it was common ground that the dates on which applications had to be made meant the dates on which the work which was the subject of the application was to be valued, the judge found that there was no express requirement in the contract for the application to be served by a particular date. However, he considered that Waco was under an implied obligation to submit the application within a reasonable time i.e. a matter of a few days after the date on which, by the terms of the contract, the application had to be made.
From the evidence before him the judge decided that by the end of 2012, at the latest, the parties had established a course of dealing by which Jacobs, on behalf of LCC, agreed to accept monthly applications that were made up to three to four business days after the contractual valuation date. He stated that if LCC had been minded to reject an application in say January 2013 because it was made three to four days after the contractual valuation date then it would not have been permitted to do so because that would have been inconsistent with the course of conduct which had been established.
After practical completion, applications should have been made on 28 March and 28 May 2014 but no submissions were made. The next valuation date was 28 July 2014 but the application was submitted on 18 July 2014. Waco tried to argue that this was a late application for March rather than an early application for July. The judge disagreed and found that it was a premature application for July. The basis for this was that if an application was made significantly outside of the three to four day period of leeway established by the course of conduct then Jacobs was under no obligation to accept it as it would not be a valid or permissible application. However, the right to submit the application revived at the next application date. In the case of this application, LCC waived the irregularity by paying it but the judge decided that this was not an implied representation that it would waive a similar irregularity in the future.
Application 21 was made on 22 September (even though the relevant date was 28 September). Again, applying the reasoning set out above, the court found that this was a premature application for September rather than a late application for May. In spite of the course of dealing in relation to late submission of applications, the judge concluded there was nothing in Jacobs’ conduct after practical completion that gave rise to a form of waiver by which Jacobs was prepared to accept an application irrespective of whether or not it was made on any valuation date (or a date within three to four days of it).
In light of the above, the judge concluded that Application 21 was not a valid application. As a result, the adjudicator’s decision that it was could not stand and the judge made a declaration accordingly. He also found that LCC was entitled to the further declaration it had sought in relation to Application 22 which effectively prevented Waco from being entitled to any payment in respect of it. Waco was therefore required to repay the sums which it had received pursuant to the adjudicator’s decision. The decision did not prevent Waco from determining the value of its final account which may have resulted in it receiving further payment.
Lessons to be learnt
For contract administrators, the case highlights the potential pitfalls of repeatedly allowing a contractor to submit interim applications later than the dates specified in the contract. By doing so, a course of dealing may be established which cannot later be rejected. For contractors the case highlights the importance of submitting interim applications on the dates specified in the contract. Whilst here there was a course of dealing established in relation to late submission of applications, that will not always be the case and will depend on the facts. It is of course not just late submission of applications that need to be watched – here an early submission proved fatal.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.