Making an interim payment claim? Then make it obvious


Contractors are increasingly referring disputes to adjudication on the basis that the Employer has failed to issue valid payment or payless notices (see ISG Construction Ltd v Seevic College, Galliford Try Building Ltd v Estura Ltd and M J Harding v Paice). This sort of ‘technical argument’ in adjudication can have the effect of entitling the Contractor to the entirety of its interim payment application, irrespective of what might be the correct valuation of the account.

However in the recent case of Caledonian Modular Ltd v Mar City Developments Ltd ([2015]) EWHC 1855 (TCC)) the court has issued the following warning to contractors seeking to benefit from such ‘technical arguments’ under the ‘New Construction Act’ payment mechanisms:

‘it seems to me that, if contractors want the benefit of these provisions, they are obliged, in return, to set out their interim payment claims with proper clarity. If the employer is to be put at risk that a failure to serve a payless notice at the appropriate time during the payment period will render him liable in full for the amount claimed, he must be given reasonable notice that the payment period has been triggered in the first place.’

In brief, an e-mail had been sent to the Employer attaching various documents just 8 days after a valid payless notice had been given. Mr Justice Coulson rejected the contractor’s claims that it had issued an interim application for payment for the following reasons:

  • Neither the covering e-mail nor the documents stated that they were a new application for payment – rather they said variously that they were a ‘final account application summary’ and an ‘updated account’;
  • The subsequent invoice sent by the contractor, which it was now claiming was a default payment notice, did not say that it was in some way a default payment notice or that the payee’s notice had already been provided.  If that had been the contractor’s position, they would have said so in clear terms; &
  • The Employer had expressly asked the contractor to confirm what the attached documents were and the explanation given by the contractor gave no suggestion that it had made a new application for payment.

Further, the claim is wrong in law as the contractor was not entitled to make an interim application when it did and it could not unilaterally issue an application early without at the very least drawing that fact to the Employer’s attention.

 Mr Justice Coulson added the following interesting observations as to the nature of the ‘technical argument’ the contractor was seeking to run:

‘I consider that the suggestion that the documents of 13 February give rise to an undisputed entitlement to over £1.5 million defies common sense, and would be contrary to the purpose of the notice provisions in the 1996 Act. It is simply not permissible for a contractor to make a claim for £1.5 million (interim application 15 on 30 January); to have it knocked back through the payless notice mechanism; to update that same claim 8 days later by adding one small variation worth £6,000; and then, by reason of that update alone, miraculously to become entitled to the £1.5 million, despite the fact that the claim for the vast bulk of that sum had already been the subject of the valid payless notice.

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. The whole purpose of the Act and the Scheme is to create an atmosphere in which the parties to a construction contract are not always at loggerheads. I consider that the claimant’s approach would achieve the opposite result.’

Comment

The message is clear, if you wish to make use of the Construction Act payment mechanisms, you must:

  • Make your interim application within the timescales set out in the contract, if the payer issues a valid payless notice then you must wait until the next payment cycle, unless you contract states otherwise; &
  • If you are making a claim, make it obvious that is what you are doing.  Mark the documents with the correct application number and state that you are making an application for payment.  Making reference to the applicable clause references in your contract could assist here.

For advice in relating to your construction disputes and to take advantage of our fixed price adjudication offering, please contact our construction team.


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