The 2014 case of ISG Construction Limited v Seevic College confirmed that in the absence of a Payment or Pay Less Notice issued in time by the employer, the contractor becomes entitled to the amount stated in its interim application, irrespective of the true value of the work actually carried out. This had profound implications for the industry as it left disorganised employers at risk of having to pay potentially vast sums by default, even if those sums did not reflect the true value of the works. However, recent judgments handed down in the TCC have shown some relaxation of that rule.
In the absence of any Payment or Pay Less Notice from Estura, an Adjudicator held that Galliford was entitled to an interim payment of approximately £4m. Estura did not pay and Galliford issued an application for Summary Judgment in the TCC to enforce the Adjudicator’s Decision.
The Court held that Estura did not have a defence and entered Summary Judgment against it. However, having considered Estura’s submissions about its inability to pay, the Court stayed enforcement of the judgment at just £1.5m. The Judge’s reasoning was that full enforcement would likely stifle Estura’s ability to fund subsequent proceedings to recover sums which, it argued, were never due to Galliford on a proper valuation of the works. Contractors and employers should take note, however, that the Judge emphasised that a case justifying a partial stay would be exceptional and rare.
There had been a history of Waco issuing applications on dates other than those specified in the contract (one was premature; most were late) and LCC’s agent certifying them for payment. However, application 21 was submitted 6 days early and LCC’s agent refused to certify it. On Adjudication, it was held that the sum claimed by Waco was payable on the basis that LCC had not issued any Payment/Pay Less Notices.
LCC applied to the Court for an Order that application 21 was invalid as it had been submitted prematurely.
The Judge held that, despite there being a previous incidence of a premature application which was certified, this did not amount to a course of dealings that Waco could rely on; its application 21 was invalid and the Adjudicator’s Decision was wrong. In giving judgment the Court gave a clear warning against relying on a previous course of dealings in place of express contractual requirements.
In this case, following 15 interim applications in standard form, Caledonian had sent an email with attached documents to Mar on 13 February 2015 requesting that they “amend/update the current payment notice” and take into account an “interim assessed figure of £125,792.87.” Mar promptly sought confirmation from Caledonian as to the nature and intended purpose of that email, but Caledonian was unable to confirm by return.
On 19 March 2015, Caledonian submitted five invoices and a “Final Account Application Summary,” reflecting the value of the invoices. On 26 March 2015, Mar issued a Pay Less Notice.
In Adjudication, Caledonian argued that the email of 13 February 2015 was a new application for payment/payee’s notice and that its invoice of 19 March 2015 was a Default Payment Notice. Whilst the Adjudicator agreed, the Court did not. The Judge’s reasoning included the fact that Caledonian had failed to say, either in its email of 13 February 2015, or when asked about it, or in its invoice of 19 March 2015 that those documents were intended to be relevant notices. The Judge indicated that contractors who want the benefit of the new payment regime are obliged to set out their interim payment claims with proper clarity and that employers who are at risk must be given reasonable notice that the payment period has commenced.
On 28 April 2015 Beck issued an interim application which was 6 days late for the next Payment Due Date (29 April 2015). It did not issue an interim application for the subsequent Payment Due Date (29 May 2015). In respect of that later Payment Due Date, the CA issued an Interim Certificate (which was late) and Henia then submitted a Pay Less Notice.
Beck sought to argue that the interim application issued on 28 April 2015 was, in fact, a valid application for the 29 May 2015 Payment Due Date and, because the CA’s Interim Certificate was late, the sum specified in Beck’s application was now due.
The Court held that Beck’s 28 April application was not a valid application for the May Payment Due Date. Its reasoning was that there was a prior relevant due date, there was nothing in the application to suggest it related to a later due date and the application only valued the works up to 30 April 2015.
The message from this case is that to avoid challenges to its validity, an interim application needs to be clear and unambiguous about what it relates to.
It is evident that the Courts are finding ways to distinguish cases on their facts from the rule in ISG Construction. However, it is evident that, at least for now, the rule will continue to apply unless there are fairly exceptional circumstances. Those in the industry would be wise to assume that the rule will apply rather than to attempt to rely on one of the above exceptions. It waits to be seen how the Court will further clarify the law in this area during 2016.
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