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Rowan Turrall
Rowan Turrall,
SENIOR ASSOCIATE - SOLICITOR
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When is an interim application for payment not an interim application for payment?
12 August 2015

There has been a flurry of recent case law before the Technology and Construction Court arising out of the enforcement of adjudicator’s decisions in connection with the service of payment notices and payless notices. In the recent case of Caledonian Modular Ltd v MAR City Developments Ltd [2015] Coulson J had to consider whether documents submitted by a contractor amounted to an interim payment application or a valid payee’s notice. The case provides useful guidance to contractors and employers alike as to the content and timing of payment applications.

The facts

MAR City Developments engaged Caledonian Modular to undertake extensive construction works at a site in North London. It was common ground that given the lack of express payment provisions the Scheme for Construction Contracts, as amended, was implied into the contract.

The claimant made monthly interim applications towards the end of each month and applications 1-14 were in the same format. They were accompanied by a letter which attached the detail of the interim application and set out the total amount due, the amount previously certified and the net payment due. The letter also identified the date by which a payment notice was to be received from the defendant and the date for final payment.

On 30 January 2015, the claimant issued application for payment number 15 which was in the same format as previous applications. The defendant responded with a pay less notice which had the effect of all but wiping out the sum claimed in application 15.

At the same time there were ongoing negotiations between the parties about the final account and in particular, the valuation of variations including an issue regarding the hire of a Combisafe scaffolding edge protection system. There was an exchange of emails in relation to this item following which the claimant sent an email on 13 February 2015 stating that it did not accept the valuation of the relevant variations but concluded

Given your interim assessment below, please amend/update the current payment notice…to take into account the interim assessed figure for the Combisafe hire...We ask that you review the instruction given on the variation 020 as issued and we have updated our account as attached.”

The email enclosed three documents. The first was headed “Greenpoint Colindale Final Account updated 13/2/2015”. It included the same figures as for application 15 but with an extra £6,642 included in respect of the Combisafe hire i.e. a total of £1,524,903.37. There was a breakdown document in similar terms to those submitted previously but headed “Final Account Application Summary”. The document still said Application number 15. The third document was an updated variation summary which also included the additional £6,642 for the Combisafe hire. The defendant emailed the claimant to ask what the documents were for and whether they were by way of update only. The response was “I can see from looking at the e-file that James did an update on the upstream fa and appln as a result of the change of proprietary scaffold dates – previous summary went past 8th”.

Nothing further happened until 19 March 2015 when the claimant sent the defendant an invoice for £1,524,903.37 with an attached breakdown in the same form as the Final Account Application Summary sent on 13 February. The defendant responded on 25 March 2015 by serving a pay less notice, breakdown and supporting documents.

The claimant referred the matter to adjudication arguing that the documents submitted on 13 February 2015 amounted to an interim payment claim and that the invoice of 19 March 2015 was a default notice. On that basis the pay less notice of 26 March was out of time. In the adjudication the claimant referred to the documents sent on 13 February as application for payment 16 and said that the reference to application 15 on its face was an error.

The adjudicator accepted that the application for payment had been made early but decided that it had been treated as a valid application and the pay less notice was out of time. He therefore found for the claimant and decided that the net sum of £908,695 was due including interest, late payment compensation and the adjudicator’s fees and expenses.

The defendant did not pay and the claimant applied to enforce the decision. The defendant resisted enforcement maintaining that the adjudicator was wrong and that the court could grant a final declaration about the status of the 13 February documents as part of the enforcement proceedings.

The proceedings

Ordinarily the court dealing with enforcement will not allow a defendant to seek to avoid payment by raising the very issue on which the adjudicator ruled against the defendant in the adjudication. However, there is an exception. If the issue is a short and self-contained point then the defendant may have it dealt with by way of a claim for a declaration provided it requires no oral evidence or other elaboration beyond what can be provided in a relatively short hearing. Coulson J highlighted that this will be rare but decided that this was one such case in which the issue was a straightforward matter for the court.

It was common ground that if the documents submitted on 13 February were a valid application then the payless notice of 25 March was out of time but if they did not amount to a proper claim for payment or a payee’s notice then the payless notice was valid and there was no entitlement to enforcement of the decision.

The decision

Coulson J had to decide whether the documents sent on 13 February 2015 amounted to a valid application for interim payment. He had no hesitation in concluding that they were not an application for an interim payment or a valid payee’s notice. He found that following on from application 15 on 30 January, the next application was that made on 19 March 2015 by the invoice and accompanying documents. In making his decision he made the following points:

  • Neither the covering email of 13 February or the accompanying documents stated they were a new application for interim payment. The invoice sent on 19 March did not say that it was a default payment notice or that a payee’s notice had originally been provided on 13 February.
  • The response to the defendant’s request for an explanation regarding the purpose of the documents did not suggest the documents of 13 February were a new interim application.
  • The document of 13 February was still called application 15 when it was sent out. Coulson J found this was not a typographical error as no-one would have anticipated application 16 until at least the end of February.
  • No further interim application could validly be made here until the end of February in accordance with the 28 day cycle the parties had agreed and followed. Even if the 13 February documents had been a valid claim for interim payment, Coulson J found that such a claim could not be made “early” without at least expressly drawing that to the defendant’s attention.
  • It is quite common for a contractor’s account to be regularly updated as part of final account discussions but that does not mean that each new update is a new claim for an interim payment.

Coulson J found that a scenario in which the contractor could make a claim which was rejected through a valid payless notice and then submit a further claim a few days later with a small addition resulting in an entitlement to a £1.5 million windfall was not permissible.  He said that:

“Such a sequence would make a mockery of the notice provisions under the Act and the Scheme. It would encourage a contractor to make fresh claims every few days in the hope that, at some stage, the employer or his agent will take his eye off the ball and fail to serve a valid payless notice, thus entitling the contractor to a wholly undeserved windfall.”

Conclusion

With another decision scrutinising the timing and content of payment applications, parties to construction contracts need to ensure that they are aware of the relevant payment mechanisms to avoid falling foul and finding themselves embroiled in costly adjudications and court proceedings. 

For more information about any questions rising from this article or to find out more about how the Dispute Resolution team can help you please contact Rowan Turrall at [email protected] or 0118 952 7206

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.

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