Complying with payment provisions

17 August, 2015

I find myself regularly writing case summaries about TCC judgments which uphold decisions in construction adjudications.  The case of Caledonian Modular Limited v Mar City Developments Limited is therefore something of a rarity!

The payment provisions in the relevant contract were governed by the Scheme.  On 30 January an application for payment (number 15) was issued.  The sum due was just over £1.5m.  A pay less notice was served by the employer on 5 February and there was no challenge to its validity. 

An area of ongoing dispute between the parties was the valuation of a series of connected variations.  Email correspondence continued between the parties and on 13 February the contractor sent an email with an updated account.  On 19 March the contractor raised a series of invoices on the basis of the updated account provided on 13 February and interim application number 15.  On 26 March, in order to protect its position while clarification was sought as to what the invoices relates to and why they had been issued, the employer served a pay less notice.

The email of 13 February did not state that it was a fresh application for payment.  None of the invoices of 19 March stated that they represented a default notice under the Scheme.  Notwithstanding this, the contractor commenced an adjudication based on the documents representing just that.  The adjudicator decided in favour of the contractor and that no pay less notice was served in time, meaning the total claimed (again c£1.5m) was due. 

In its judgment the TCC had little hesitation in setting aside the adjudicator’s decision, which did not appear to involve any detailed scrutiny of whether the documents in question represented a valid application for payment and valid default notice.  It appeared to have been accepted at face value that this is what the documents represented.

To the TCC, the absence of any clarity as to what the documents of 13 February and 19 March were intended to represent was fatal.  They did not say on their face that they were, respectively, an application for payment and a default notice (the judge noted that they were inconsistent in form and content to all previous equivalent payment documents).  Underlying negotiations (which the documents appeared to have been produced in connection with, rather than in connection with a fresh application under the contract) was another.  Third it was premature and so could not stand as a valid fresh application.  To allow it to stand would be inconsistent with the provisions in the Scheme and would allow contractors to issue repeated applications for payment every few days (without clearly stating that this is what the document represents and in ignorance of the payment provisions which bind the parties) in the hope that if the employer took its eye off the ball for just one that the contractor would then secure an undeserved windfall. 

It appears the view taken was of the contractor seeking to construct a self-serving argument as to what the email of 13 February and subsequent invoice represented after the event and on the facts the decision is perhaps an easy one for the TCC to have arrived at.  The case does serve as a warning to contractors and those representing contractors that if an application for payment under a construction contract is being made it must be sufficiently clear on its face that this is what it is and, for an early application to be considered valid there must be clear evidence that the parties had agreed to depart from the contractual mechanism for payment. 

The case also illustrates that in unusual cases where the basis of a challenge to an adjudicator’s decision is straightforward and can be disposed of swiftly in favour of the paying party, the court can resolve that without first requiring payment of the sum the adjudicator decides is due. 



Reviewed in 2015