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A contract prescribing one periodic payment, even of an insignificant amount is sufficient to satisfy the statutory requirements

- February 3, 2016

In Grove Developments Ltd v Balfour Beatty Regional Construction Ltd  [2016] EWHC 168 (TCC) (03 February 2016) Mr Justice Stuart-Smith held there is no statutory requirement as to when interim payments are to be made under a construction contract; any arrangement which satisfies statute will be sufficient.  Thus a contract prescribing one periodic payment, even of an insignificant amount, will meet the requirements.

The Claimant, “GDL” (the Developer), made a Part 8 claim seeking declaratory relief against the Defendant, “BB” (the Contractor).  The judgment records: 

“By a contract made between GDL and BB (then known as Mansell Construction Services Limited) dated 11 July 2013 [“the Contract”], GDL employed BB to design and construct a hotel and serviced apartments adjoining the O2 Complex at Greenwich Peninsular, London. The Contract Sum was £121,059,632. [2] 

The Contract was based on the JCT Design and Build Contract 2011 as amended by a series of bespoke amendments, some of which are relevant and will require to be mentioned below. Pursuant to the Contract, works began in July 2013. The defined Date for Completion of the Works was 22 July 2015. The works were not completed by 22 July 2015 and have still not been completed, for reasons which are in dispute between the parties but do not matter for present purposes. [3] 

…the parties agreed a Schedule [“the agreed Schedule”] of 23 valuation and payment dates covering the period from September 2013 to July 2015, which governed the making of interim applications and payments during that period. On 21 August 2015, after the period covered by the agreed Schedule, BB issued an application for a further interim payment [“IA24”]. The sum claimed by way of payment was £23,166,425.92 plus VAT. As set out below, GDL served documents described as a Payment Notice and a Pay Less Notice. BB’s case is that it was entitled to serve IA24 and that GDL failed to serve either a Payment Notice or a Pay Less Notice within the applicable time limits. In consequence, BB asserts that GDL is liable to pay £23,166,425.92. GDL contends that BB had no contractual right to issue or be paid in respect of IA24 and, on that basis, the notice regime is irrelevant…” [4] 

In circumstances in which on 11 January 2016 an adjudicator had issued a decision that, accounting for the £439,503.31 already paid by GDL, that GDL should pay a further £2million in respect of IA24, GDL asked the Court to decide amongst other things, whether BB had a “…contractual right to make IA24 (or any subsequent application) and to be paid in respect thereof?”  [5i)]

Stuart-Smith J explained: 

“The Contract Particulars in respect of Clause 4.7 elected for stage payments in accordance with Alternative A and deleted, by striking through, the option of periodic payments in accordance with Alternative B. In respect of the stages referred to in Clause 4.8.2, the parties agreed and wrote: “TO BE AGREED WITHIN 2 WEEKS FROM DATE OF CONTRACT”. The space for a brief description of stages and the cumulative value was then left blank. At the end of that space, footnote 15 said “Cumulative value of final stage must be equal to the Contract Sum.” Where appropriate details could then have been entered if Alternative B (Periodic Payments) had been adopted, the following words were crossed out “The first date is …. And thereafter the same date in each month or the nearest Business Day in that month.” There is no footnote or other provision equivalent to footnote 15 relating to Periodic Payments where Alternative B is selected. [10] 

Despite the stated intention of the parties that the stage payments were to be agreed within 2 weeks of the date of contract, that did not happen. Instead, it is common ground that the parties agreed the agreed Schedule, which was a schedule of valuation numbers, the months of the particular valuations, and various other steps leading to payment (as set out below) during the period from September 2013 until July 2015. The agreed Schedule included above the table of dates the words “Greenwich Hotel and Apartments/ Interim Valuation/Payment Dates 2013-2015/ Valuation Application on Third Thursday of the month”. [15]

Whilst the parties agreed the Schedule regulated the payment process until July 205 they disagreed about the effect it had, if any, after July 2015.One of the questions arising was therefore “…how and to what extent the Scheme fills gaps left by, or takes the place of, the provisions of a Construction contract as defined by the Housing Grants, Construction and Regeneration Act 1996 as amended] (“the Act”)”? [26]

Ss. 109 and 110 of the Act provides:

“109.— Entitlement to stage payments.

(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.”

Stuart-Smith J agreed with the reasoning and decision of the Outer House in the Scottish Case of Hills Electrical & Mechanical Plc v. Dawn Construction Ltd [2003] ScotCS 107 (7 April 2003), that payment provisions of the Scheme are not automatically fully incorporated in to all of construction contracts but the appropriate provision or provisions of the Scheme are to be imported in order to make up for their omission or inadequacy in the construction contract.

But the learned judge also agreed and endorsed Keating on Construction Contracts 9th Edn at 18-057 about the effect of s.109 of the Act, namely:

“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.” [32]

Stuart-Smith J [23] referred to (amongst other authorities cited) Arnold v Britton & Ors [2015] UKSC 36 (10 June 2015) at [19]-[20]:

“…The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language….”

“…a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight…”

He continued:

“…the effect of s. 109(2) is clear. Pursuant to s. 109(2), it would be open to the parties to agree stage payments by reference to stages that would be concluded at highly irregular intervals and require highly variable amounts to be paid.” [30]

The conclusion was therefore somewhat unsurprisingly:

“It follows that if the parties enter into an agreement about the amounts of the payments and the intervals at which, or circumstances in which, they become due, the mere fact that the agreement does not provide for interim payments covering all of the work under the contract is no reason to import the provisions of the Scheme to supplement their agreement so as to generate interim payments covering the work that their agreement does not cover. [33]

…By the agreed Schedule… Its effect was… that s. 109(3) no longer had any application to the contract because the parties had agreed the amounts of the payments and the intervals at which, or circumstances in which, they became due. [35]

…BB had no contractual right to make or be paid in respect of IA24 (or any subsequent application).” [41]

Nigel Davies

3 February 2016


The information & opinions expressed in this article and associated video are not necessarily comprehensive, nor do they represent the trenchant view of the author; in any event this article does not purport to offer professional advice. This article has been prepared as a summary and is intended for general guidance only. In the case of a specific problem, it is recommended that professional advice be sought.

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