Making an interim payment claim? Then make it obvious (Part 2)
Those avid readers of our blog will remember that a couple of weeks ago we wrote about the need for contractors to make their Interim Applications within the timescales set out within the contract, and to make it obvious that they are making such an application, following the case of Caledonian Modular Ltd v Mar City Developments Ltd ( EWHC 1855 (TCC)).
The Technology and Construction Court has provided yet further guidance in relation to the making of Interim Applications in the case of Henia Investments Inc v Beck Interiors Ltd  EWHC 2433 (TCC).
In Henia the court was asked to decide two issues relating to the interim payment process in the context of a JCT Standard Building Contract without Quantities 2011. The court also dealt with an interesting issue regarding extension of time and liquidated damages, but that it for another blog!
Issue 1 – was the Contractor’s Application No 18 an effective or valid Interim Payment Notice?
The Contractor had seemingly issued its Interim Application without paying attention to the date by which it was supposed to do so under the Contract, thereby missing the date for the April 2015 valuation by 6 days and being some 3 weeks early in respect of the May 2015 valuation. The Contractor argues that its Interim Application 18 was to be treated as its early application for the May valuation.
In rejecting the Contractor’s argument, Mr Justice Akenhead found that:
- the April payment cycle was the 18th relevant due date under the Contract, therefore by using the words “Interim Application for Payment No: 18” the intention appears to be that it was a late application in respect of April rather than an early application in respect of May (which would be number 19);
- there was nothing on the application which pointed towards it relating to the May due date, indeed the Contractor only valued the works in its application up to the end of April, rather than forecasting its work to the May due date;
- the application was as consistent with being issued late in error or in hope that it would be valued in April as it was with being intended to be the May application; and
- crucially, the Contractor did not say at the time of the application that it has missed the April application date and that the application was intended to relate to the May date.
Issue 2 – was the Employer’s Pay Less Notice effective or valid?
This issue turned essentially on whether the Employer could use a Pay-Less Notice to challenge what had been certified by the CA, as opposed to merely setting up cross claims or other deductions.
Mr Justice Akenhead decided that there was nothing in the wording of the JCT contract that the Employer cannot legitimately challenge the amount certified by the CA, or indeed the amount within a Contractor’s default notice. The Pay-Less Notice can not only raise deductions and legimitate set-offs but also may deploy the Employer’s own valuation. In this case the Employer had merely put forward the CA’s latest evaluation of the account and, in the judge’s words, ‘would have provided an adequate agenda for an adjudication as to the true value of the Works’.
The judge stated that it was ‘mutually foreseeable by both contracting parties’ that the Employer might wish to challenge an Interim Application or Interim Payment Notice (i.e. in a default payment notice) issued by the Contractor, or alternatively challenge the CA’s assessment.
There are clear messages arising from this case for Contractors, Employers and Consultants certifying under the JCT payment machinery:
- Know you contract and make your interim applications on the correct dates.
- If you are making an interim application, make it abundantly clear that you are doing so, including marking the documents with the correct application number.
- Know your contract and make sure you issue your Pay Less Notices on the correct dates.
- The Pay Less Notice can be used to deploy your own valuation of the works and is not limited to set-offs and counterclaims. You may wish to use the Pay Less Notice to challenge the certifier’s valuation, or a default payment notice issued by the Contractor.
- Know the contract and make sure you issue your notices on the correct dates. The CA in this case had issued both Interim Certificates 18 and 19 late. This could potentially leave you open to claims from the Employer.
We recommend that you take advice as to the terms of your contract at the earliest possible stage, ideally before it has been entered into, in order to avoid potentially costly disputes caused by one or more party not complying with its obligations.
For advice in relating to your contracts or your construction disputes, please contact our construction team.