Has the contractor made a valid interim application?

4 May, 2016
by: Cripps Pemberton Greenish

Beach hutsThe courts have recognised the severe implications for an employer in failing to submit valid Pay Less Notices and so to try to balance out the power have insisted on contractor’s applications being clear and unambiguous so that an employer knows when an interim payment cycle has been triggered.  The TCC has recently decided on another case,  Jawaby Property Investment Ltd v The Interiors Group Ltd and another [2016] EWHC 557 (TCC), which provided a further example of how the courts have applied these principles.

 

The claimant in this case was the employer, Jawaby Property Investment Ltd (JPI), under a JCT Design and Build Contract 2011 with bespoke amendments.  The defendant was the contractor, The Interiors Group Ltd (TIG).  The building contract included a payment mechanism that required TIG to make a monthly interim application for payment that included details of amounts considered due together with all supporting information.  The due date for each interim payment, deadline for Payment Notices and Pay Less Notice and the final date for payment were all calculated based on the date on which JPI received TIG’s application.  The JCT Design and Build Contract 2011 terms had been amended to delete any reference to communication by email being acceptable.

 

The employer’s agent accepted interim applications for payment from TIG that were sent by email.  From the facts presented in the case, the first six interim payments proceeded smoothly albeit JPI on two occasions decided to serve Pay Less Notices. 

 

Interim application 7 did not proceed as smoothly.  In brief, TIG submitted what it called an “initial assessment” on 7 January 2016 and the employer’s agent emailed TIG a certificate for payment on 15 January 2016 providing a negative valuation but no breakdown of how that valuation had been calculated.  Following a request from TIG the employer’s agent provided a breakdown on 18 January 2016.  It was accepted by JPI that both communications from its agent were too late to constitute valid Payment Notices.  No further notices were sent by JPI and so to try to protect its position it asked the court to declare that (a) TIG’s certificate for payment was not valid as it was sent by email (b) in the alternative that TIG did not submit an interim application for payment as they themselves referred to the breakdown submitted as an initial assessment and (c) even if a valid interim application for payment had been submitted the breakdown from JPI’s agent provided to TIG on 18 January 2016 constituted a valid Pay Less Notice.

 

The court found that argument (a) had no merit.  The building contract was silent on whether email communication would be acceptable and in any event JPI waived any restriction on applications not being valid if sent by email based on its dealings with interim payments 1 to 6.  Argument (b) was the winning one however – TIG labelling the application as an initial assessment was enough for the court to decide that the intention was that the valuation was not TIG’s final assessment and so did not constitute a formal  interim application.  Although the point was moot as JPI won on argument (b), the court decided that the employer’s agents’ breakdown of its valuation was not a valid Pay Less Notice as the form and content did not correspond to the previous Pay Less Notices submitted by JPI in relation to earlier interim payments.

 

The TCC therefore accepted that the parties had departed from the contractual payment mechanism, which may have allowed TIG a chance of success but the door was then firmly closed as TIG’s application was not clear and unambiguous enough in the court’s eyes to trigger a interim payment.  The employer was fairly fortunate in this case however as it failed to protect its position by serving a valid Pay Less Notice whether or not it believed the contractors application was valid.