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You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Manor Asset Ltd v Demolition Services Ltd (Rev 1) [2016] EWHC 222 (TCC) (15 February 2016) URL: https://www.bailii.org/ew/cases/EWHC/TCC/2016/222.html Cite as: [2016] EWHC 222 (TCC) |
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QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
MANOR ASSET LIMITED |
Claimant |
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- and - |
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DEMOLITION SERVICES LIMITED |
Defendant |
____________________
Mr Martin Hirst (instructed by Bates Solicitors) for the Defendant
Hearing date: 26th January 2016
____________________
Crown Copyright ©
"Our assessment of the works undertaken for financial purposes is as follows: Demolition completed . . . 60%"
The provisions of the contract (as originally made)
"Interim payments to completion
4.3 The due dates for interim payments to the Contractor shall be the dates occurring at intervals of 4 weeks calculated from the Date for Commencement of the Works. Not later than 5 days after the due date the Architect/Contract administrator shall issue an interim certificate for a sum equal to the percentage stated in the Contract particulars of what he considers to be the total value as at the due date of:
. . .
less the total of sums stated as due to the Contractor previous interim certificates . . . The final date for payment of the certified sum shall be 21 days from the due date.[1]
Interim payments on and after practical completion
4.4 . . .
Payment - amount and notices
4.5 .1 Subject to any notice given by the Employer under clause 4.5.4, the sum to be paid by the Employer on or before the final date for payment under clause 4.3 or 4.4 shall be the sum stated as due in the interim certificate.
.2 If an interim certificate is not issued in accordance with clause 4.3 4.4, the Contractor may at any time after the 5 day period referred to in those clauses give a payment notice to the Employer, with a copy to the[2] Architect/Contract Administrator stating the sum that the Contractor considers to be or have been due to him at the due date on the basis on which that sum has been calculated. In that event, the sum to be paid by the Employer shall, subject to notice subsequently given by him under clause 5.4, be the sum stated as due in the Contractor's payment notice.
. . .
.4 If the Employer intends to pay less than the sum stated as due from him in the interim certificate or, where applicable, the Contractor's payment notice, he shall not later than 5 days before the final date for payment give the contractor that notice of intention stating the sum that he considers to be due to the Contractor at the data gives notice under this clause 4.5 and the basis on which that sum has been calculated. Where the Employer gives that notice, the payment to be made on or before the final date for payment shall not be less than the amount stated as due in his notice.
. . .
Failure to pay amount due
4.6 If the Employer fails to pay a sum, or any part of it, due to the Contractor under clause 4.5[3] by the final date for its payment, the Employer shall, in addition to any unpaid amount that should probably have been paid, basic Contractor simple interest on that amount . . ."
The amendment
CONTRACT AMENDMENTS
Section 4 Payment
Interim payments up to practical completion
Shall be amended as follows:
Payment Milestones
60% of contract value paid when demolition passes the black line as illustrated on image below, less the 20% paid to date. Payment to be made within 72 hours of receipt of invoice, issued when the milestone is achieved.
75% of contract value paid when demolition reaches slab top, less the amount paid by this milestone.
90% of contract value paid when crashing is complete, less the amount paid by this milestone.
100% of contract value paid at PC, less payments made.
Below this text there was a photograph of the site with a black line running more or less horizontally across the photograph. Below that image the document was signed by two directors on behalf of each party.
The provisions of the Housing Grants, Construction and Regeneration Act 1996 (as amended) ("the Act")
"110 Dates for Payment
(1) Every construction contract shall—
(a) provide an adequate mechanism for determining what payments become due under the contract, and when, and
(b) provide for a final date for payment in relation to any sum which becomes due.
The parties are free to agree how long the period is to be between the date on which a sum becomes due in the final date for payment.
110A Payment notices: contractual requirements
(1) A construction contract shall, in relation to every payment provided for by the contract—
(a) require the payer or a specified person to give a notice complying with subsection (2) to the payee not later than five days after the payment due date, or
(b) require the payee to give a notice complying with subsection (3) to the payer or a specified person not later than five days after the payment due date.
(2) A notice complies with this subsection if it specifies—
(a) in a case where the notice is given by the payer—
(i) the sum that the payer considers to be or to have been due at the payment due date in respect of the payment, and
(ii) the basis on which that sum is calculated;
(b) in a case where the notice is given by a specified person—
(i) the sum that the payer or the specified person considers to be or to have been due at the payment due date in respect of the payment, and
(ii) the basis on which that sum is calculated.
(3) A notice complies with this subsection if it specifies—
(a) the sum that the payee considers to be or to have been due at the payment due date in respect of the payment, and
(b) the basis on which that sum is calculated.
(4) For the purposes of this section, it is immaterial that the sum referred to in subsection (2)(a) or (b) or (3)(a) may be zero.
(5) If or to the extent that a contract does not comply with subsection (1), the relevant provisions of the Scheme for Construction Contracts apply.
(6) In this and the following sections, in relation to any payment provided for by a construction contract—
"payee" means the person to whom the payment is due;
"payer" means the person from whom the payment is due;
"payment due date" means the date provided for by the contract as the date on which the payment is due;
"specified person" means a person specified in or determined in accordance with the provisions of the contract.
110B Payment notices: payee's notice in default of payer's notice
. . .
111 Requirement to pay notified sum
(1) Subject as follows, where a payment is provided for by a construction contract, the payer must pay the notified sum (to the extent not already paid) on or before the final date for payment.
(2) For the purposes of this section, the "notified sum" in relation to any payment provided for by a construction contract means—
(a) in a case where a notice complying with section 110A(2) has been given pursuant to and in accordance with a requirement of the contract, the amount specified in that notice;
(b) in a case where a notice complying with section 110A(3) has been given pursuant to and in accordance with a requirement of the contract, the amount specified in that notice;
(c) in a case where a notice complying with section 110A(3) has been given pursuant to and in accordance with section 110B(2), the amount specified in that notice.
(3) The payer or a specified person may in accordance with this section give to the payee a notice of the payer's intention to pay less than the notified sum.
(4) A notice under subsection (3) must specify—
(a) the sum that the payer considers to be due on the date the notice is served, and
(b) the basis on which that sum is calculated.
It is immaterial for the purposes of this subsection that the sum referred to in paragraph (a) or (b) may be zero.
(5) A notice under subsection (3)—
(a) must be given not later than the prescribed period before the final date for payment, and
(b) in a case referred to in subsection (2)(b) or (c), may not be given before the notice by reference to which the notified sum is determined.
(6) Where a notice is given under subsection (3), subsection (1) applies only in respect of the sum specified pursuant to subsection (4)(a).
(7) In subsection (5), "prescribed period" means—
(a) such period as the parties may agree, or
(b) in the absence of such agreement, the period provided by the Scheme for Construction Contracts.
(8) Subsection (9) applies where in respect of a payment—
(a) a notice complying with section 110A(2) has been given pursuant to and in accordance with a requirement of the contract (and no notice under subsection (3) is given), or
(b) a notice under subsection (3) is given in accordance with this section,
but on the matter being referred to adjudication the adjudicator decides that more than the sum specified in the notice should be paid.
(9) In a case where this subsection applies, the decision of the adjudicator referred to in subsection (8) shall be construed as requiring payment of the additional amount not later than—
(a) seven days from the date of the decision, or
(b) the date which apart from the notice would have been the final date for payment,
whichever is the later.
(10) Subsection (1) does not apply in relation to a payment provided for by a construction contract where—
(a) the contract provides that, if the payee becomes insolvent the payer need not pay any sum due in respect of the payment, and
(b) the payee has become insolvent after the prescribed period referred to in subsection (5)(a).
(11) Subsections (2) to (5) of section 113 apply for the purposes of subsection (10) of this section as they apply for the purposes of that section."
(12) In section 112 of that Act (right to suspend performance for non-payment)—
(a) in subsection (1), for the words from "Where" to "given" substitute " Where the requirement in section 111(1) applies in relation to any sum but is not complied with, ";
(b) in subsection (3), for "the amount due" substitute " the sum referred to in subsection (1) ".
The adjudicator's Decision
The achievement of the first milestone
"I am satisfied on the balance of probabilities that at 23 October 2015 Demolition Services had passed below the line shown on the photograph incorporated in the Parties' Contract and therefore the milestone had been achieved. Demolition Services was therefore entitled to raise its invoice."
In the following paragraph he gave his reason for reaching this conclusion, which was that MAL had made no suggestion in its "pay less" notice dated 28 October 2015 that DSL had not achieved the milestone as at 23 October 2015. Rather the adjudicator observed that it was noticeable that MAL valued the work completed as being 60% at that point.
The payment provisions
"Clause 4.5.4 of the Parties' Contract expressly permits Manor Asset to issue a payless notice not later than five days before the final date for payment of a payment application by Demolition Services. Manor Asset was therefore obliged to issue any payless notice it wished to rely on not later than 18 October 2015."
"However, it is possible to establish from paragraph 10.1.17 of his Decision that he concluded that the final date for payment of the Invoice was 23 October 2015. In the Defendant's witness statement served in response to this Claim it is asserted that the Adjudicator decided that the final date for payment was 72 hours after the Invoice was raised and reliance is placed on paragraphs 10.1.13 and 10.1.15 of the Adjudicator's Decision (see paragraph 21 of Mr Wray's witness statement). This assertion is surprising and unsustainable and the paragraphs relied on failed to provide any support to it at all."
"The next issue is to consider how much a part this reference to or reliance by the adjudicator upon a clause which had never been argued by or put to the parties played in his decision and decision making process. The court should be slow to speculate upon what the adjudicator would, should or could have done or decided if he had not referred to or relied upon such a clause. The reasons are obvious, namely that the court cannot know or determine what the adjudicator would have done in those circumstances save by reference to the wording of the decision itself and the court should not try to substitute its own views for what the adjudicator should have done because the parties in this case and otherwise Parliament by the Housing Grants, Construction and Regeneration Act 1996 has decided that it is adjudicators who should be making the decision. The court is not some appellate tribunal which can revise the decision. This is in contra-distinction to the Arbitration Act which has very specific provisions enabling the court to vary arbitral awards in certain circumstances."
The authorities
"16. Before discussing in greater detail the reasoning of the Court of Appeal, the Board will make some general observations about the process of implication. The court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute or articles of association. It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the instrument means. However, that meaning is not necessarily or always what the authors or parties to the document would have intended. It is the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed: see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912-913. It is this objective meaning which is conventionally called the intention of the parties, or the intention of Parliament, or the intention of whatever person or body was or is deemed to have been the author of the instrument.
17. The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.
18. In some cases, however, the reasonable addressee would understand the instrument to mean something else. He would consider that the only meaning consistent with the other provisions of the instrument, read against the relevant background, is that something is to happen. The event in question is to affect the rights of the parties. The instrument may not have expressly said so, but this is what it must mean. In such a case, it is said that the court implies a term as to what will happen if the event in question occurs. But the implication of the term is not an addition to the instrument. It only spells out what the instrument means.
19. The proposition that the implication of a term is an exercise in the construction of the instrument as a whole is not only a matter of logic (since a court has no power to alter what the instrument means) but also well supported by authority. In Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601, 609 Lord Pearson, with whom Lord Guest and Lord Diplock agreed, said:
"[T]he court does not make a contract for the parties. The court will not even improve the contract which the parties have made for themselves, however desirable the improvement might be. The court's function is to interpret and apply the contract which the parties have made for themselves. If the express terms are perfectly clear and free from ambiguity, there is no choice to be made between different possible meanings: the clear terms must be applied even if the court thinks some other terms would have been more suitable. An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract: it is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them: it must have been a term that went without saying, a term necessary to give business efficacy to the contract, a term which, though tacit, formed part of the contract which the parties made for themselves."
20. More recently, in Equitable Life Assurance Society v Hyman [2002] 1 AC 408, 459, Lord Steyn said:
"If a term is to be implied, it could only be a term implied from the language of [the instrument] read in its commercial setting."
21. It follows that in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean. It will be noticed from Lord Pearson's speech that this question can be reformulated in various ways which a court may find helpful in providing an answer – the implied term must "go without saying", it must be "necessary to give business efficacy to the contract" and so on – but these are not in the Board's opinion to be treated as different or additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?
22. There are dangers in treating these alternative formulations of the question as if they had a life of their own. Take, for example, the question of whether the implied term is "necessary to give business efficacy" to the contract. That formulation serves to underline two important points. The first, conveyed by the use of the word "business", is that in considering what the instrument would have meant to a reasonable person who had knowledge of the relevant background, one assumes the notional reader will take into account the practical consequences of deciding that it means one thing or the other. In the case of an instrument such as a commercial contract, he will consider whether a different construction would frustrate the apparent business purpose of the parties. That was the basis upon which Equitable Life Assurance Society v Hyman [2002] 1 AC 408 was decided. The second, conveyed by the use of the word "necessary", is that it is not enough for a court to consider that the implied term expresses what it would have been reasonable for the parties to agree to. It must be satisfied that it is what the contract actually means.
23. The danger lies, however, in detaching the phrase "necessary to give business efficacy" from the basic process of construction of the instrument. It is frequently the case that a contract may work perfectly well in the sense that both parties can perform their express obligations, but the consequences would contradict what a reasonable person would understand the contract to mean. Lord Steyn made this point in the Equitable Life case (at p. 459) when he said that in that case an implication was necessary "to give effect to the reasonable expectations of the parties."
24. The same point had been made many years earlier by Bowen LJ in his well known formulation in The Moorcock (1889) 14 PD 64, 68:
"In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men"
25. Likewise, the requirement that the implied term must "go without saying" is no more than another way of saying that, although the instrument does not expressly say so, that is what a reasonable person would understand it to mean. Any attempt to make more of this requirement runs the risk of diverting attention from the objectivity which informs the whole process of construction into speculation about what the actual parties to the contract or authors (or supposed authors) of the instrument would have thought about the proposed implication. The imaginary conversation with an officious bystander in Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206, 227 is celebrated throughout the common law world. Like the phrase "necessary to give business efficacy", it vividly emphasises the need for the court to be satisfied that the proposed implication spells out what the contact would reasonably be understood to mean. But it carries the danger of barren argument over how the actual parties would have reacted to the proposed amendment. That, in the Board's opinion, is irrelevant. Likewise, it is not necessary that the need for the implied term should be obvious in the sense of being immediately apparent, even upon a superficial consideration of the terms of the contract and the relevant background. The need for an implied term not infrequently arises when the draftsman of a complicated instrument has omitted to make express provision for some event because he has not fully thought through the contingencies which might arise, even though it is obvious after a careful consideration of the express terms and the background that only one answer would be consistent with the rest of the instrument. In such circumstances, the fact that the actual parties might have said to the officious bystander "Could you please explain that again?" does not matter.
26. In BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 282-283 Lord Simon of Glaisdale, giving the advice of the majority of the Board, said that it was "not … necessary to review exhaustively the authorities on the implication of a term in a contract" but that the following conditions ("which may overlap") must be satisfied:
"(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying' (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract".
27. The Board considers that this list is best regarded, not as series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means, or in which they have explained why they did not think that it did so. The Board has already discussed the significance of "necessary to give business efficacy" and "goes without saying". As for the other formulations, the fact that the proposed implied term would be inequitable or unreasonable, or contradict what the parties have expressly said, or is incapable of clear expression, are all good reasons for saying that a reasonable man would not have understood that to be what the instrument meant."
"26. I accept that both (i) construing the words which the parties have used in their contract and (ii) implying terms into the contract, involve determining the scope and meaning of the contract. However, Lord Hoffmann's analysis in Belize Telecom could obscure the fact that construing the words used and implying additional words are different processes governed by different rules.
27. Of course, it is fair to say that the factors to be taken into account on an issue of construction, namely the words used in the contract, the surrounding circumstances known to both parties at the time of the contract, commercial common sense, and the reasonable reader or reasonable parties, are also taken into account on an issue of implication. However, that does not mean that the exercise of implication should be properly classified as part of the exercise of interpretation, let alone that it should be carried out at the same time as interpretation. When one is implying a term or a phrase, one is not construing words, as the words to be implied are ex hypothesi not there to be construed; and to speak of construing the contract as a whole, including the implied terms, is not helpful, not least because it begs the question as to what construction actually means in this context.
28. In most, possibly all, disputes about whether a term should be implied into a contract, it is only after the process of construing the express words is complete that the issue of an implied term falls to be considered. Until one has decided what the parties have expressly agreed, it is difficult to see how one can set about deciding whether a term should be implied and if so what term. This appeal is just such a case. Further, given that it is a cardinal rule that no term can be implied into a contract if it contradicts an express term, it would seem logically to follow that, until the express terms of a contract have been construed, it is, at least normally, not sensibly possible to decide whether a further term should be implied. Having said that, I accept Lord Carnwath's point in para 71 to the extent that in some cases it could conceivably be appropriate to reconsider the interpretation of the express terms of a contract once one has decided whether to imply a term, but, even if that is right, it does not alter the fact that the express terms of a contract must be interpreted before one can consider any question of implication.
29. In any event, the process of implication involves a rather different exercise from that of construction. As Sir Thomas Bingham trenchantly explained in Philips at p 481:
"The courts' usual role in contractual interpretation is, by resolving ambiguities or reconciling apparent inconsistencies, to attribute the true meaning to the language in which the parties themselves have expressed their contract. The implication of contract terms involves a different and altogether more ambitious undertaking: the interpolation of terms to deal with matters for which, ex hypothesi, the parties themselves have made no provision. It is because the implication of terms is so potentially intrusive that the law imposes strict constraints on the exercise of this extraordinary power."
30. It is of some interest to see how implication was dealt with in the recent case in this court of Aberdeen City Council v Stewart Milne Group Ltd 2012 SLT 205. At para 20, Lord Hope described the implication of a term into the contract in that case as "the product of the way I would interpret this contract". And at para 33, Lord Clarke said that the point at issue should be resolved "by holding that such a term should be implied rather than by a process of interpretation". He added that "[t]he result is of course the same"."
The submissions of the parties in relation to the final date for payment
"29. Section 110A of the Act imposes a requirement that every construction contract requires the payer or payee to give notice not later than 5 days after the payment due date of the amount it considers due for payment.
30. Prior to the Variation Agreement, that requirement was satisfied by clause 4.3 and the issue of an interim certificate. Clause 4.3 was effectively removed by the Variation Agreement.
31. If it is correct (and it appears to now be common ground) that the Variation Agreement, nevertheless, satisfied the requirement imposed by Section 110A of the Act, namely that it required the payee (DSL) to give a notice (the Invoice) to the payer or a specified person not later than five days after the payment due date of the amount it considered to be due for payment, the question that arises is when (if at all) the Variation Agreement provided the final date for payment of that amount and the date by which MAL was required to serve any payless notice."
"to construe the Variation Agreement so that the due date is not the date of the receipt of the Invoice but 72 hours after that date. The final date for payment would then either be as originally prescribed by the Contract (21 days after the due date pursuant to clauses 4.5.2 or 4.5.3) or 17 days after the due date if it were to be decided that these clauses have been amended out of the Contract and the Scheme prescribed the final date for payment."
The true construction of the amendment
"It is a principle of construction that where a contract is capable of having two alternative meanings, one of which is lawful and the other unlawful, the former interpretation is to be preferred. This is based on a proposition that the parties are unlikely to have intended to agree to something unlawful or that the court should lean against an interpretation that produces unreasonable consequences."
The consequences of my conclusions
"The contract shall provide that the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agreed to arbitration) or by agreement."
The disposal of the applications
Note 1 In the Schedule of Amendments 21 days was substituted as the period in place of the 14 days in the original contract wording. [Back] Note 2 The reference to the notice being sent to the Employer, with a copy to the Architect/Contract Administrator was also added by amendment. [Back] Note 3 The reference to clause 4.5 was inserted by amendment in place of a reference to clause 4.3 or 4.4. [Back] Note 4 It appears that this analysis of the photographic evidence did not take place until after the dispute had been referred to adjudication 10 days later. [Back]