The payment provisions in building contracts can be complicated. This can lead to misunderstandings as to what the contract requires of the parties.
It is not unusual in my experience to find the parties adopting a different payment procedure to the one envisaged in the contract; that is a recipe for confusion and, ultimately, dispute.
These issues recently came to a head in the case of Henia Investments Inc v Beck Interiors Ltd. Beck was employed by Henia to carry out fit-out works pursuant to a JCT Standard Building Contract without Quantities 2011. The building contract provided that:
- Interim payment due dates were on the 29th of each month
- The contractor could, if it wished, issue a payment application not less than seven days before the due date
- The contract administrator was obliged to issue an interim certificate not later than five days after each due date, stating the sum he considered to be due at the due date
- If the contract administrator failed to issue an interim certificate, and the contractor had made a valid interim payment application, then the amount stated in the interim application would become the amount payable by the employer, subject to any valid pay less notice
The source of the confusion in this case was Beck’s “Interim Application for Payment No. 18”, which it issued by email on 28 April 2015. The 18th interim payment was the one due on 29 April. Beck should have served its interim application for the April due date on 22 April.
However, Beck argued that its interim application no. 18 did not in fact relate to April, and was an application in respect of the following due date (29 May). If that was right, the application was made early, but there was nothing to stop it making an early application for payment.
However, the judge rejected Beck’s argument that its interim application was a valid application in respect of the May due date. A payment application must, said the judge, be free from ambiguity and must in substance, form and intent be an interim application in relation to the relevant due date. It has to be clear from the contractor’s application “that an application relating to a specific due date is being made”.
Beck’s application failed that test because it was ambiguous as to whether it related to the sum the contractor considered would fall due in April or May.
It is not uncommon for contractors to submit documents, as part of the payment process, which are unclear as to their intent or purpose; such contractors risk not being paid.
Employers, though, should tread carefully. If there is any doubt as to whether a valid payment application has been made, serve a pay less notice. In this case Henia did so and the judge found that, had Beck’s payment application been a valid application, Henia’s pay less notice would have been sufficient to avoid making payment.
Ben Worthington is a senior associate at Olswang