Construction – Interim payments – JCT Design and Build Contract 2011 with amendments – Parties agreeing schedule for interim payments – Appellant contractor applying for interim payment from respondent employer after period covered by agreed schedule – Whether any contractual right to such payment – Appeal dismissed
By a contract dated July 2013, the respondent developer employed the appellant contractor to design and construct a hotel and serviced apartments adjoining the O2 complex at Greenwich Peninsular, SE10. The contract was based on the JCT Design and Build Contract 2011 as amended by a series of bespoke amendments, and the contract sum was roughly £121m. The parties also agreed a schedule of 23 valuation and payment dates, covering the period from September 2013 to July 2015, to govern the making of interim payments during that period.
Work proceeded under the contract but was not completed by the contractual completion date in July 2015. In August 2015, the appellant applied for a further interim payment, no 24, which went beyond those specified in the schedule to the contract. It asserted that a payment notice and a pay less notice, in which the respondent proposed to deduct £2m from the sum claimed, were invalid and that it was accordingly entitled to payment in full.
The respondent applied successfully to the court for a declaration that the appellant had no contractual entitlement to interim payments in respect of work done after July 2015. The judge held that the interim payment schedule was a specific amendment to the contract which provided for 23 interim payments in accordance with the dates set out in the schedule but which did not provide for any further interim payments after those dates. He held that the contract as amended satisfied the requirements of sections 109 and 110 of the Housing Grants, Construction and Regeneration Act 1996 as to provision for stage payments and a mechanism for determining those payments, with the result that the Scheme for Construction Contracts did not apply and there was no statutory right to monthly interim payments under that scheme: see [2016] EWHC 168 (TCC); [2016] PLSCS 37. The appellant appealed.
Held (Vos LJ dissenting): The appeal was dismissed.
(1) The parties had agreed a hybrid arrangement for valuation and payment which had elements of Alternative B in the standard JCT Design and Build Contract 2011, in particular as to valuation, but with a timetable of their own invention. They had made no agreement as to whether, or how, they would deal with interim payments after July 2015. It was not possible to find that the parties intended monthly interim payments to continue, with the dates of valuations, payment notices and payments capable of resolution by adjudication if necessary. Identification of the dates for valuation, payment notices, pay less notices and payments were an essential feature and the consequences of serving notices out of time could be draconian. Both parties therefore needed to know with certainty what were the applicable dates.
The above interpretation of the contract was not contrary to commercial common sense. The express words used made it clear that the parties were only agreeing a regime of interim payments up to the contractual date for practical completion. It was impossible to deduce from the hybrid arrangement what would be the dates for valuations, payment notices, pay less notices and payments after July 2015, all of which were essential matters. Commercial common sense could only come to the rescue of a contracting party if it was clear in all the circumstances what the parties intended, or would have intended, to happen in the circumstances which subsequently arose. This was a classic case of one party making a bad bargain and the court could not use the canons of construction to rescue that party from the consequences of what it had clearly agreed. There was no ambiguity in the contractual provisions that would enable the court to reinterpret the parties’ contract in accordance with commercial common sense. The language of the contract, as amended by the schedule, was clear and provided only for interim payments up to valuation 23: Arnold v Britton [2015] UKSC 36; [2015] AC 1619; [2015] EGLR 53 considered.
(2) For similar reasons, it was not possible to imply a term regarding interim payments after the date for practical completion. In particular, it was not obvious what the proposed term would say or what would be the critical dates for serving notices. Furthermore, the proposed term was not necessary to secure business efficacy and it could not be said that the contract would lack commercial or practical coherence without such a term: BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 and Marks & Spencer plc v BNP Paribas Securities Services Trust CO (Jersey) Ltd [2015] UKSC 72; [2016] AC 742; [2016] EGLR 8 applied.
It followed that the contract as amended by the schedule provided for interim payments to stop at the contractual date for practical completion. There was neither an express term nor any implied term which enabled the appellant to receive interim payments after valuation 23. While the appellant would receive full payment for their work in due course, it would have to wait until the final payment date as defined in clause 4.12 of the contract conditions.
(3) There was no failure to comply with the requirements of sections 109 and 110 of the 1996 Act so far as they required the contract to make provision for stage payments and a mechanism for determining those payments. Accordingly, the relevant provisions of the Scheme for Construction Contracts regarding interim payments did not apply.
To comply with section 109, it was not necessary that the contract provided a regime of interim payments covering the whole of the work that the contractor performed. The reference in section 109 to “any work” did not mean every single piece of work but instead had the more general meaning that work done under construction contracts should, save in very short projects, be subject to a regime of interim payments. If parties were to exclude the operation of the scheme, they had to draw up a system of interim payments in good faith, but section 109 gave them considerable latitude as to the system of interim payments which they might agree. They could decide for themselves the frequency of interim payments and the amounts to be paid, and could, for example, agree that interim payments were to be less than the full value of work done.
In the instant case, where the parties had agreed a regime of 23 interim payments stretching right up to the date specified for practical completion, the contract as amended by the schedule satisfied the requirements of section 109. Clause 4.14 of the contract also provided an adequate mechanism for quantifying interim payments. The parties’ contract, although unusual, therefore satisfied the requirements of section 110. It followed that the Scheme did not apply and the appellant could not rely on it to recover interim payments after July 2015.
(3) Nor was it possible to find, on the facts, that the parties had reached any agreement as to the terms on which interim payments would be made since they had not agreed the dates for valuations, notices and payments.
Steven Walker QC and Camille Slow (instructed by Pinsent Masons LLP) appeared for the appellant; Alexander Nissen QC and William Webb (instructed by McFarlanes LLP) appeared for the respondent.
Sally Dobson, barrister