Arbitration – Building contract – Amendment – Pay less notice – Contract providing for payment at specified milestones – Defendant raising invoice for work done – Dispute arising as to sum payable – Matter being referred to adjudication – Adjudicator making decision in defendant’s favour – Claimant company applying for declaration that adjudicator’s decision unenforceable – Whether adjudicator failing to properly consider relevant photographic evidence – Whether adjudicator deciding wrong final date for payment – Whether adjudicator preventing claimant from address approach to pay less invoice – Claim dismissed – Summary judgment granted
The parties entered into a contract for demolition works at a site known as Manor Mill in Hull. The contract was in the form of the JCT Minor Works Building Contract with Contractor’s Design 2011 with certain bespoke amendments. By an amendment made in August 2015, section 4 of the contract, which dealt with provisions for payment, was amended so as to provide for payment of a percentage of the contract value on the achievement of certain milestones.
On 23 October 2015, the defendant issued an invoice for 60% of the price, asserting that it had achieved the first milestone in accordance with the terms of the amendment. On 28 October, the claimant what it contended was a valid pay less notice in which the amount due was stated to be £1,500. In November, the defendant referred a dispute about non-payment of its invoice to adjudication. The defendant claimed that the invoice should have been paid within 72 hours of receipt, namely on or by 26 October. Moreover, the pay less notice issued by the claimant was invalid. The adjudicator decided that the claimant’s payless notice of 28 October had not been a valid notice and the defendant had achieved the relevant milestone and ordered the claimant to pay £72,500 plus VAT to the defendant. The claimant applied for declarations that the decision was unenforceable on the grounds of breaches of natural justice and as to the final date for payment of the defendant’s invoice. The defendant responded by seeking summary judgment to enforce the adjudicator’s decision.
The claimant argued that the adjudicator had erred in concluding that the defendant had achieved the first milestone because he had failed to take into account its photographic evidence and in concluding that the final date for payment was 72 hours after the invoice had been raised. Furthermore, the adjudicator had given no warning that he had been proposing to decide that the pay less notice should have been given before the date of the defendant’s invoice so that the claimant had been prevented from making any submissions as to the consequence of such an approach.
Held: The claim was dismissed. Summary judgment was granted.
(1) The court was unpersuaded that the adjudicator had not taken into account the claimant’s evidence in relation to the analysis of the photographs. The claimant had not shown that there had been a breach of natural justice under that head. Further, on the true construction of the decision, the adjudicator had decided that the due date for payment was when the relevant milestone had been achieved and invoice had been issued. He had also concluded that the final date for payment had been 72 hours from the date of the invoice, namely 26 October 2015. There had been nothing unusual or unexpected about either of those conclusions.
(2) Although there appeared to have been no warning from the adjudicator of his intended approach to the pay less notice, the claimant had made it clear that the consequence of the time limit on serving the pay less notice was that it would be impossible for the claimant to comply. The reality was that the adjudicator had failed to appreciate (or ignored) the fact that service of a pay less notice prior to the payee’s notice was not permitted under section 110A of the Housing Grants, Construction and Regeneration Act 1996. In the circumstances, it was difficult for the claimant to say that it had been deprived of the opportunity to make, and still less had been prevented from making, all relevant submissions as to the timing of the pay less notice. Almost every permutation of payment due dates and final date for payment had been considered. On balance, the claimant had had a proper opportunity to put its submissions on the timing of the pay less notice, and there had been no breach of natural justice by the adjudicator.
(3) In determining the final date for payment of the defendant’s invoice, the overriding point was that, before implying any term, the court had to conclude that the implication of that term was necessary in order to give business efficacy to the contract or, alternatively, it was necessary to imply the term in order to make the contract work as the parties had intended. This was a case where the reasonable person in the position of the parties would understand the milestone amendment to mean that something was to happen. The only way in which the amendment could be made to work, was to say that the prescribed period was to be nil – thus enabling the claimant to serve a pay less notice at any time within 72 hours after receipt of the invoice. Such an agreement was necessary and was not inequitable: if the defendant had wanted prompt payment within 72 hours of the invoice, it could not reasonably have objected to a corresponding reduction in the prescribed period.
(4) As a result of the amendment, the final date for payment was 72 hours after receipt by the claimant of the defendant’s invoice following achievement of a milestone. It followed that the due date for payment was the date when the milestone was achieved and the parties were to be taken to have agreed by necessary implication that the prescribed period for the service by the claimant of any pay less notice was nil: It could be served at any time between receipt of the invoice and the expiry of 72 hours following such receipt. Accordingly, the adjudicator’s decision that the claimant’s pay less notice was not valid had been correct, the claimant’s challenges to the validity of the decision failed and the defendant was entitled to summary judgment: Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 and Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd [2015] UKSC 72; [2015] PLSCS 341 considered.
Jonathan Lewis (instructed by Brecher Solicitors) appeared for the claimant; Martin Hirst (instructed by Bates Solicitors) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read transcript: Manor Asset Ltd v Demolition Services Ltd
