Juli Lau, associate in the Sharpe Pritchard Adjudication team, and trainee solicitor Uzma Raja look at a recent case that highlights the perils of failing to comply with contractual dates in respect of interim applications for payment.

Background

Leeds City Council, as employer, entered into a contract with Waco UK Ltd UK Ltd, as contractor, whereby Waco UK Ltd agreed to design and build modular classroom buildings at a local primary school.  The contract provided that up until practical completion on 28 March 2013, the contractor’s interim applications for payment were to be issued monthly after specified valuation dates.  Waco UK Ltd did not issue the interim applications in strict accordance with the contract and usually issued these a few days later.  Despite this, Leeds City Council showed itself to be unperturbed by these delays and paid the amount due.

The contract provided that, after practical completion, the contractor should issue its interim applications at 2-month intervals, unless otherwise agreed, again after the valuation dates that were specified.  Waco UK Ltd, as was the case during the pre-completion stage, did not issue these interim applications strictly in accordance with the contract, with some being issued early and some later than the dates as stipulated in the contract.

Application 21, for the amount of £484,759, was sent six days early before the contractual date.  The employer failed to issue any payment notices in respect of this.  At the adjudication subsequently launched by Waco UK Ltd, in respect of the non-payment of Application 21, the adjudicator decided that it was entitled to the sum of £484,759 because Leeds City Council had failed to issue a payment or pay less notice.

Leeds City Council refused to pay this sum and Waco UK Ltd sought enforcement proceedings.  Leeds City Council sought a declaration from the Technology and Construction Court that Application 21, by virtue of its being premature, was invalid.

The decision

The judge decided that the adjudicator had been wrong to conclude that Application 21 was valid.  The judge found a course of dealing to exist between the parties prior to practical completion, with regard to where Waco UK Ltd would issue application three or four days late and Leeds City Council would effectively ignore the delay and pay the amount due.  If the circumstances had been such that Leeds City Council was disputing an interim application that was 3–4 business days late, the council would have been ‘estopped’ from arguing it was invalid.

However, the judge decided that this course of dealing did not extend to interim applications that were made early.  Leeds City Council had paid a sum for a smaller amount of around £13,000 in response to an early interim application by Waco UK Ltd in July 2014, but the judge decided that this alone was not enough to establish a course of dealing whereby early interim applications were now deemed to be valid.  This payment was differentiated on the basis that it was ‘pragmatic’ payment of a low-value sum.

Ultimately, the valuation date was the date upon which the work carried out thus far was valued and so it was not possible to make a valuation before the relevant valuation date, as that would mean valuing works that had not yet been carried out.

Implications

Once again, this decision highlights the perils of failing to comply with contractual dates in respect of interim applications for payment.  In particular, it highlights the uncertainties with regard to payment timings that can arise when a course of dealing has been established.

For further information, contact Juli Lau on 020 7405 4600 or email email hidden; JavaScript is required.

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published.