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England and Wales High Court (Technology and Construction Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Grove Developments Ltd v Balfour Beatty Regional Construction Ltd  EWHC 168 (TCC) (03 February 2016)
Cite as: 165 Con LR 153,  WLR(D) 55,  Bus LR 480,  EWHC 168 (TCC)
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QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Strand, London, WC2A 2LL
B e f o r e :
| GROVE DEVELOPMENTS LTD
|- and -
|BALFOUR BEATTY REGIONAL CONSTRUCTION LTD
Steven Walker QC (instructed by Pinsent Masons LLP) for the Defendant
Hearing dates: 20 January 2016
Crown Copyright ©
Mr Justice Stuart-Smith:
i) Did BB have a contractual right to make IA24 (or any subsequent application) and to be paid in respect thereof?
ii) If so, on a proper construction of the Contract what date was the final date for payment in respect of such application(s) and did GDL serve a valid Pay Less Notice?
i) BB has no contractual right to make IA24 (or any subsequent application) and no right to be paid in respect thereof;
ii) Not applicable. Alternatively, 28 days from the due date which, in the case of the August 2015 application, was 18 September 2015 and GDL's Pay Less Notice of 15 September 2015 was a valid Pay Less Notice. Alternatively, if the last date for service of a Pay Less Notice was earlier than 15 September 2015, GDL's Payment Certificate constituted a valid Pay Less Notice.
The Factual and Contractual Background
"Issue and amount of Interim Payments
.1 Interim Payments shall be made by the Employer to the Contractor in accordance with section 4 and whichever of Alternative A (Stage Payments) or Alternative B (Periodic Payments) is stated in the Contract Particulars to apply.
.2 The sum due as an Interim Payment shall be an amount equal to the Gross Valuation under clause 4.13 where Alternative A applies, or clause 4.14 where Alternative B applies, in either case less the aggregate of:
.1 any amount which may be deducted and retained by the Employer as provided in clauses 4.16 and 4.18 ('the Retention')
.2 the cumulative total of the amounts of any advance payment that have then become due for reimbursement to the Employer in accordance with the terms stated in the Contract Particulars for clause 4.6; and
.3 the amounts paid in previous Interim Payments."
Contractor's Interim Applications and due dates
.1 In relation to each Interim Payment, the Contractor shall make an application to the Employer (an 'Interim Application') in accordance with the following provisions of this clause 4.8, stating the sum that the Contractor considers to be due to him and the basis on which that sum has been calculated.
.2 Where Alternative A applies, an Interim Application shall be made as at completion of each stage specified in or by the Contract Particulars for Alternative A. Following the application in respect of the last stage, such applications shall be made at intervals of 2 months (unless otherwise agreed), the last such application being made upon the expiry of the Rectification Period or, if later, the issue of the Notice of Completion of Making Good (or, where there are Sections, the last such period or notice). The due date for payment (the 'due date') in each case shall be the later of the date of completion of the stage (or, when applicable, the 2 monthly date) and the date of receipt by the Employer of the Interim Application.
.3 Where Alternative B applies, for the period up to practical completion of the Works, Interim Applications shall be made as at the monthly dates specified in the Contract Particulars for Alternative B up to the date of practical completion or the specified date within one month thereafter. Subsequent Interim Applications shall be made at intervals of 2 months (unless otherwise agreed), the last such application being made upon the expiry of the Rectification Period or, if later, the issue of the Notice of Completion of Making Good (or, where there are Sections, the last such period or notice). The due date in each case shall be the later of the specified date and the date of receipt by the Employer of the Interim Application.
.4 Interim Applications may be made
before, on or after completion of the relevant stage or the monthly date and shall be accompanied by such further information as may be specified in the Employer's Requirements and Contractor's Proposals.
"Interim Payments – final date and amount"
.1 The final date for payment of an Interim Payment shall be 28 days
14 daysfrom its due date.
.2 Not later than 5 days after the due date the Employer shall give a notice (a 'Payment Notice') to the Contractor in accordance with clause 4.10.1 and, subject to any Pay Less Notice given by the Employer under clause 4.9.4, the amount of the Interim Payment to be made by the Employer on or before the final date for payment shall be the sum stated as due in the Payment Notice.
.3 If the Payment Notice is not given in accordance with clause 4.9.2, the amount of the Interim Payment to be made by the Employer shall, subject to any Pay Less Notice under clause 4.9.4, be the sum stated as due in the Interim Application.
.4 If the Employer intends to pay less than the sum stated as due from him in the Payment Notice or Interim Application, as the case may be, he shall not later than 3
5days before the final date for payment give the Contractor notice of that intention in accordance with clause 4.10.2 (a 'Pay Less Notice'). Where a Pay Less Notice is given, the payment to be made on or before the final date for payment shall not be less than the amount stated as due in the noticePay Less Notice.
.5 If the Employer fails to pay a sum, or any part of it, due to the Contractor under these Conditions by the final date for its payment, the Employer shall, in addition to any unpaid amount that should properly have been paid, pay the Contractor simple interest on that amount at the Interest Rate for the period from the final date for payment until payment is made. Interest under this clause 4.9.5 shall be a debt due to the Contractor from the Employer.
.6 Acceptance of a payment of interest under clause 4.9.5 shall not in any circumstances be construed as a waiver of the Contractor's right to proper payment of the principal amount due, to suspend performance under clause 4.11 or to terminate his employment under section 8.
"Payment Notices, Pay Less Notice and general provisions
.1 Each Payment Notice under this Contract shall specify the sum that the Party giving the notice considers to be or have been due at the due date in respect of the relevant payment and the basis on which that sum has been calculated.
.2 A Pay Less Notice:
.1 (where it is to be given by the Employer) shall specify both the sum that he considers to be due to the Contractor at the date the notice is given and the basis on which that sum has been calculated;
.2 (where it is to be given by the Contractor) shall specify both the sum that he considers to be due to the Employer at the date the notice is given and the basis on which that sum has been calculated.
.3 A Payment Notice or a Pay Less Notice to be given by the Employer may be given on his behalf by the Employer's Agent or by any other person who the Employer notifies the Contractor as being authorised to do so.
.4 In relation to the requirements for the giving of notices under section 4 and the submission of a Final Statement, it is immaterial that the amount then considered to be due may be zero.
.5 Any right of the Employer to deduct or set off any amount (whether arising under any provision of this Contract or under any rule of law or equity) shall be exercisable against any monies due or to become due to the Contractor, whether or not such monies include or consist of any Retention.
Notwithstanding his fiduciary interest in the Retention as stated in clause 4.16, the Employer is entitled to exercise any rights under this Contract of withholding or deduction from sums due or to become due to the Contractor, whether or not any Retention is included in any such sum under clause 4.18."
|Valuation no.||Val month||Mansell Application Submission Date to Grove||Valuation Date||Grove Certificate Issued
(3 working days)
|Payment made by Grove by (30 days from Val date)|
It is common ground that the agreed Schedule regulated the interim payment process from September 2013 until July 2015. The parties are in dispute about what effect, if any, it had thereafter.
i) Towards the end of May 2015 there was a conversation between Mr Edwards of GDL and Mr Peach of BB when, according to Mr Peach, Mr Edwards asked him to produce a list of further dates for interim payments beyond July 2015;
ii) On 26 May 2015 Mr Peach emailed Mr Edwards "Also, as discussed, we will formulate a revised interim payment list for further and future interims throughout 2015.";
iii) On 27 May 2015 Mr Hawtree of BB emailed Mr Edwards "For future payments could I bring to your attention that the Contract payment terms are 28 days and not 30 days as noted in the valuation schedule … .";
iv) Later that day Mr Peach emailed Mr Edwards saying "Further to discussions regarding Interim Valuation Date/Payment Periods, etc. can I suggest an update to the current schedule as attached… ." The attached schedule proposed dates for valuations 21 to 23 that differed from those set out in the agreed Schedule and proposed dates for valuations 24 and 25 in August and September, but not beyond. The heading was much the same as the agreed Schedule except that the heading did not now include the words "Valuation Application on Third Thursday of the month". The column headings to the table were changed, as set out below;
v) On 1 June 2015 Mr Edwards replied to Mr Hawtree and Mr Peach "Please see attached, which is more in line with current payments and is 28 days from Due date not valuation date". He attached a revised version of the document he had been sent by Mr Peach. He made further changes to the column headings as set out below. He amended Mr Peach's proposed BB Application Submission Dates for Valuations 22 and 23, the Payment dates for Valuations 21-23, and Mr Peach's proposed BB Application Submission Dates and the Payment dates for Valuations 24 and 25. The effect of his changes to Mr Peach's proposals for valuations 24 and 25 was that the date for payment by GDL would be 28 days after GDL issued its certificate and 35 days after the valuation date, whereas under Mr Peach's proposal the date for payment by GDL would be 21 days after GDL issued its certificate and 28 days after the valuation date. Under the agreed Schedule, the date for payment by GDL was said to be 30 days after GDL issued its certificate and 35 days after the valuation date;
vi) On 2 June 2015 Mr Peach queried the changes made by Mr Edwards, emailing "We see what you have done with the dates but isn't the "due date" the valuation date in this case? This would then accord with our schedule sent to you.";
vii) Mr Edwards replied on 5 June 2015 "Not that I am aware of as the Final payment date is the key date so have to work back from this to tie in with the funding agreements."
|Valuation no.||Val month||Mansell Application Submission Date to Grove||Valuation Date||Grove Certificate Issued
(3 working days)
|Payment made by Grove by (30 days from Val date)|
I highlight the entries that were changed from the previous version in italics below. The column headings for Mr Peach's schedule on 27 May 2015 were:
|Valuation no.||Val month||BB Application Submission Date to Grove by||Valuation Date||Grove Certificate Issued by||Payment made by Grove by (28 days from Val date)|
The column headings for Mr Edwards' responsive schedule on 1 June 2015 were:
|Valuation no.||Val month||BB Application Submission Date to Grove by||Valuation Date||Grove Certificate Issued by Due Date
||Payment made by Grove by (28 days from Due date)|
i) On 28 August 2015 GDL's agent McBains Cooper issued a document entitled "Payment Certificate" in the sum of £2,349,504, together with substantial supporting documentation showing how that figure was calculated. It was sent under cover of a letter which said "Please find attached Payment Certificate 24 … . In accordance with the contract, you are notified that the Employer may withhold or deduct liquidated damages.";
ii) On 1 September 2015 Mr Edwards emailed Mr Hawtree "to avoid the monthly confusion I suggest the Final Date for Payment being 25th September 2015. Please confirm agreement." There was no reply;
iii) On 4 September 2015 Mr Peach sent a letter to GDL in which he referred to the 28 August Payment Certificate, giving details of a bank account into which the monies should be paid, and stating "We enclose our invoice … and we shall be pleased to receive your remittance in settlement of this amount certified in accordance with the terms and conditions of our agreement." The attached invoice was in the sum of £2,349,504 plus VAT. It stated under the heading "Project Details" "Due date of Payment: 21-Aug-2015 Final Date of Payment 18-Sep-2015". These dates were consistent with the dates that had been proposed for Valuation 24 by BB on 27 May 2015 but not with GDL's proposal on 1 June 2015, under which GDL's payment date would have been 25 September 2015;
iv) There was a conversation between Mr Edwards and Mr Hawtree on 8 September 2015, after which Mr Edwards emailed Mr Hawtree "confirming" Mr Hawtree's agreement that 25 September 2015 was the Final Date for Payment of the August application. Mr Hawtree replied saying that he had not agreed to the date, whereupon Mr Edwards accused him of reneging on what he had said;
v) On 10 September 2015 Mr Hawtree sent a long email in which he recorded that Mr Edwards had suggested 25 September 2015 as the Final date for payment and set out his view on the correct date. He referred back to Mr Edwards' schedule of 1 June 2015 and wrote "I … understand that we both agree that the final date for payment is 28 days after the due date. The difference between us is that you are using the Grove Certificate date as the due date while we think that the valuation date is the due date." On that basis he calculated that payment was due by GDL on 18 September 2015;
vi) On 15 September 2015 GDL issued a document headed "Revised Certificate for Payment/Payless Notice" in the sum of £439,503 exclusive of VAT. It stated that the Payment Date was 25 September 2015, which was consistent with the line that Mr Edwards had been taking. According to a witness statement from Mr Edwards, the contents of which have not been challenged by BB in these proceedings, it had become clear to him that agreement could not be reached and so "[he] decided to work on the basis that [BB] was correct, that the final date for payment was 28 days after the due date and that 18 September 2015 was the final date for payment, which was based on Mark Hawtree's email of 10 September 2015 and [BB's] invoice of 4 September 2015. … As a result, I calculated that a Pay less Notice would have to be served by no later than 15 September 2015.";
vii) On 18 September 2015 GDL paid BB the amount set out in the Pay Less Notice, namely £439,503 exclusive of VAT;
viii) On 30 September 2015 Mr Hawtree sent a letter to Mr Edwards in which he asserted that GDL's Payment Certificate and Payless Notice were invalid and of no effect. BB claimed to be entitled to £22,726,922 or, alternatively, £2,000,000. The stage for the present dispute was thus set.
i) BB had not advanced the analysis before 30 September;
ii) Although BB had proposed 21 August 2015 as the valuation date for IA24 on 27 May 2015, it had in that schedule proposed that the final date for payment by GDL would be 18 September, not 7 September 2015;
iii) On 4 September 2015 BB had issued its invoice which stated that 18 September 2015 was the Final Date for Payment; and
iv) On 10 September 2015 (by which time, on the basis of his later analysis, the final date for payment had passed) Mr Hawtree had represented to GDL that payment was due on 18 September 2015, adopting a different analysis from that deployed in his letter of 30 September.
i) On 18 September 2015 BB submitted Interim Valuation Application 25. McBains Cooper issued a payment certificate on 25 September 2015 which was amended and reissued on 29 September 2015;
ii) On 23 October 2015 BB submitted Interim Valuation Application 26. GDL issued a payment certificate on 28 October 2015, which was subsequently revised on 3 November 2015;
iii) On 22 October 2015 Mr Hawtree asked Mr Edwards to agree "a valuation date for November" and suggested 20 November "to run in with the sequence of previous valuation dates" to which Mr Edwards agreed on 28 October 2015. Interim Valuation Application 27 was issued on 20 November 2015;
iv) On 19 November 2015 BB issued its Notice of Adjudication, which was followed on 26 November 2015 by its Referral Notice;
v) On 3 and 9 December 2015 the parties agreed that a December valuation date would be 18 December 2015 but GDL qualified its agreement by saying that it was without prejudice to its argument in the adjudication that BB was not entitled to make any further interim applications or to receive any further interim payments.
vi) No sums have been paid to BB since 18 September 2015. GDL has been issuing Payless Notices deducting liquidated damages. BB contends that it is entitled to an extension of time and challenges the lawfulness of the deductions of liquidated damages.
The Applicable Principles
Interpreting commercial contracts
How the Scheme fits with Existing Contracts and the place of Interim Payments Under the Act and Scheme
109.— Entitlement to stage payments.
(1) A party to a construction contract is entitled to payment by instalments, stage payments or other periodic payments for any work under the contract unless—
(a) it is specified in the contract that the duration of the work is to be less than 45 days, or
(b) it is agreed between the parties that the duration of the work is estimated to be less than 45 days.
(2) The parties are free to agree the amounts of the payments and the intervals at which, or circumstances in which, they become due.
(3) In the absence of such agreement, the relevant provisions of the Scheme for Construction Contracts apply.
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 and the final date for payment.
(3) If or to the extent that a contract does not contain such provision as is mentioned in subsection (1), the relevant provisions of the Scheme for Construction Contracts apply.
"Further, there is no requirement as to when such payments are to be made; any arrangement which satisfies the definition will be sufficient. Thus a contract prescribing one periodic payment, even of an insignificant amount, would it seems, meet the requirements."
Issue 1: Did BB have a contractual right to make and to be paid in respect of IA24 (or any subsequent application)?
Issue 2: If BB had a contractual right to make or be paid in respect of IA24 (or any subsequent application) what date was the final date for payment in respect of such application(s) and did GDL serve a valid Pay Less Notice?
i) If the correct analysis was that the agreed Schedule was to continue in force, then the final date for payment would be 30 days from the valuation date (taken in the agreed schedule as the date of the Grove certificate which is 3 working days after the date in the valuation date column): 35 days from 21 August 2015 would be 25 September;
ii) If the correct analysis was that the agreed Schedule no longer determined the date of the final date for payment, then it no longer served to amend Clause 4.9.1, which provided that the final date for payment would be 28 days from the due date. There is no justification for resorting to the Scheme in circumstances where (a) s. 109(3) is not applicable and (b) the contract already makes provision for determining the final date for payment. Taking 21 August 2015 as the due date leads to a final date for payment of 18 September 2015.