Contributors
We previously considered the case of Bouygues (UK) Ltd v Febrey Structures Ltd[1] as the latest decision on interim payments which has been before the courts.
Since then, on 13 October 2016, the appeal decision has been handed down in the case of Balfour Beatty Regional Construction Ltd v Grove Developments Ltd[2]. This case considered a contractor's right to make an interim application in circumstances where the payment schedule in the contract provided for 23 interim applications only and had not taken into account that the project could overrun and that further payment applications may be needed.
Background
The contract included a schedule which listed 23 monthly interim applications and then payments to be made by the employer to the contractor as follows:
- Application No. 1 was to be made on 19 September 2013, with a date for payment of 20 October 2013
- The monthly applications continued until the final Application No. 23 which was to be made on 16 July 2015, with a date for payment of 21 August 2015.
The project was due to be completed on 22 July 2015, however it overran substantially (completion was in July 2016).
In May 2015 it became clear that the project was going to overrun but no agreement could be reached between the parties as to the timings of the applications and payments after Application No. 23.
Despite no agreement having been reached, the contractor decided to submit Application No. 24 on 21 August 2015. The employer issued a payment notice on 28 August 2015 and then a pay less notice on 15 September 2015. The pay less notice deducted £2m. This resulted in a payment due to the contractor of £439,503 which the employer paid on the payment date shown on its payment notice.
The contractor did not agree with the employer's calculation of the dates. It was the contractor's view that the pay less notice had been served out of time and the contractor wrote to the employer to demand the payment of £2m which was subject to the pay less notice.
Exchanges continued between the parties as to the dates for applications and payments. Applications and notices were served notwithstanding that no agreement had been reached on applications after Application No. 23.
In December 2015, the employer then informed the contractor that the contractor was not entitled to further interim payments.
TCC decision
This was another example of a claimant making use of the Part 8 declaration procedure. The case was heard only 6 weeks after the claim form was issued.
In Grove Developments Ltd v Balfour Beatty Regional Construction Ltd[3], the TCC granted the declarations sought by the employer that:
- The contractor did not have a right to make Interim Application No. 24 (or any subsequent application) and has no right to be paid in respect of those applications
- The employer's pay less notice was valid.
Appeal
The contractor appealed on the following grounds:
- The agreed schedule expressly or impliedly provided for continuing interim payments until the date of practical completion
- The schedule did not satisfy the requirements of section 109 and 110 of the Housing Grants, Construction and Regeneration Act 1996 (Construction Act) (and so the Scheme under the Construction Act applied – which sets out requirements for monthly interim payments where the contract does not comply with the requirements of the sections)
- The correspondence between the parties for further interim payments gave rise to a fresh contract for monthly interim payments.
Taking the above in turn, Lord Justice Jackson and Lord Justice Longmore dismissed the appeal and held that:
- The schedule did not expressly or impliedly provide for continuing interim payments until the date of practical completion:
The express words provided for a regime of interim payments to the contractual date of practical completion and no provision is made for after that date. It is impossible to ascertain any dates for application and notices after Application No. 23 (and these were essential matters for the parties to agree). The court will not simply step in to rescue a party from a "bad bargain". There was no ambiguity which enabled the court to reinterpret the contract with "commercial common sense" (although Lord Justice Vos considered that there was ambiguity in the contract).
In addition, the requirements of Marks and Spencer v BNP Parabis Securities Services Trust[4] in relation to implied terms were not met. It was not obvious what that implied term would be and it was not necessary for the business efficacy of the contract.
- The schedule did satisfy the requirements of section 109 and 110 of the Construction Act:
The schedule agreed a regime of 23 payments and the relevant clause in the contract provided an adequate mechanism for establishing payments. Payments were not required for every piece of work and therefore the Scheme under the Construction Act did not apply.
- The correspondence between the parties for further interim payments did not give rise to a fresh contract for monthly interim payments:
No agreement was ever reached.
The case serves as a reminder of the importance of checking the payment mechanism under your contract and any related schedules to ensure consistency and that they meet your expectations (particularly in the event of a project overrun). If matters don't quite work out how you were expecting, courts are reluctant to step in and rescue a party from a "bad bargain".
