A matter of timing

A recent decision of the Technology and Construction Court (TCC) has provided valuable guidance to contractors and employers regarding the payment regime in the JCT Design and Build (JCT DAB) (2011 edition as amended).

The TCC was asked to consider a dispute arising from the refurbishment and conversion of a mansion house in Somerset in Kersfield Developments (Bridge Road) Ltd vs Bray and Slaughter Ltd [2017]. The contract, between Kersfield, the client, and the contractor, Bray and Slaughter, was in the form of the JCT DAB, and included a mechanism for interim payments, the first being due on 5 February 2015 and thereafter on the same date (or nearest business day) each month.

Bray issued an interim application for payment on 5 August 2016 and it was agreed that the final date for payment was 19 August. If Kersfield wished to issue a payless notice, they had to do so by 14 August.

At 9.50pm on Friday 12 August, Kersfield emailed a payless notice to Bray. Under the contract any notice sent by email took effect on the date served if served by 4pm on a business day, or otherwise on the next business day. As the email was sent after 4pm, the notice was deemed served on Monday 15 August and was therefore late.

Kersfield failed to pay Bray the full amount claimed (paying only the amount stated in its payless notice) and on 23 September Bray commenced adjudication, arguing that as Kersfield had failed to issue a valid payment or payless notice, Bray was entitled to be paid the full sum set out in its application.

Kersfield argued Bray’s application did not “unambiguously” explain how the sum claimed had been calculated and therefore was not a valid application for payment. Kersfield also argued that the contractual provision concerning service of notices by email frustrated the timetable for the service of notices set out in the Housing Grants, Construction and Regeneration Act 1996 (the Construction Act).

The adjudicator decided that Bray’s application was valid, and as Kersfield had not served a valid payment or payless notice, the entire sum applied for must be paid.

Parties must consider the impact of any provisions and amendments to the payment regime

Kersfield failed to make payment pursuant to the adjudicator’s decision and on Bray’s application to enforce, the court referred to case law in which it was held that an interim application must be obviously identifiable as such and must set out the sum claimed as due and the basis on which the sum is calculated. However, the court decided the contract in question did not specifically provide that an interim application would be invalid without adequate supporting information, and there was no basis for the implication of such a provision. Therefore, while lack of substantiation may be a valid reason for the rejection of an interim application, it did not render the application itself invalid. A payless notice was therefore required if Kersfield was to reject the application.

As to Kersfield’s argument concerning the frustration of the timetable set out in the Construction Act, the court held there was a distinction between the provisions of the act identifying prescribed periods within which a notice must be given, and any agreement between parties which fixes the date by which the notice is deemed to be given. Section 111 of the Construction Act requires any payless notice to be served not later than the prescribed period before the final date for payment (which can be agreed between the parties or as set out in the statutory scheme). As a result, the provisions of the contract regarding the date of deemed service of notice by email was valid and, as Kersfield had failed to serve a payless notice by 14 August, it was required to pay the entire sum due in Bray’s application.

This case is a further reminder of the potentially harsh consequences of failing to issue notices strictly in accordance with the requisite time periods after receipt of an interim application. Although the Construction Act and statutory scheme set out the timetable for the issue of notices, parties can agree the manner of service, including deemed date of service.

Parties must therefore carefully consider the impact of any provisions and amendments to the payment regime set out in the contract, as any misunderstanding or non-compliance can lead to devastating results.

Kersfield vs Bray also provides guidance on substantiation of interim applications. Interim applications for payment are often challenged or rejected on the basis that insufficient substantiation has been provided and this decision does not cast doubt on the ability of a party to seek to reject or challenge an application on this basis. However, the case clarifies that the interim application itself will not be invalid for lack of substantiation, meaning payment/payless notices must still be issued in time.

Rebecca Williams and David Wright are senior associates in the London office of Watson Farley & Williams