Background

Grove Developments Ltd employed Balfour Beatty to design and build a hotel and serviced apartments. The completion date was 22 July 2015 but the work had still not been completed by the hearing date.

The contract was based on the Joint Contracts Tribunal (JCT) Design and Build Contract 2011 with the following bespoke amendments to the payment provisions:

  • The parties opted for stage payments (alternative A);
  • the stages of the payments were to be agreed within two weeks of the date of contract;
  • the final date for payment of an interim payment was 28 days from the due date; and
  • a pay less notice had to be served three days before the final date for payment.

The parties agreed a schedule outside the two-week time frame setting out 23 valuation payment dates for interim applications and payments between September 2013 and July 2015.

From May 2015, the parties were in discussions about the terms of any interim payments going beyond July 2015 but did not reach an agreement. On 21 August 2015, Balfour Beatty issued an application for a further interim payment (IA24). On 15 September 2015, Grove Developments Ltd served a payment certificate and a pay less notice and paid Balfour Beatty the pay less notice amount on 18 September 2015. Balfour Beatty argued that Grove Developments Ltd’s documents were invalid and claimed to be entitled to nearly £23 million or, alternatively, £2 million.

Balfour Beatty commenced adjudication proceedings and the adjudicator decided that they were owed £2 million. Grove Developments Ltd commenced a Part 8 claim seeking declaratory relief in respect of two issues:

  • Did Balfour Beatty have a contractual right to make, and be paid in respect of, IA24 or any subsequent application? and
  • If so, what was the final date for payment and did Grove Developments Ltd serve a valid pay less notice?

Decision

The Technology and Construction Court (TCC) held that Balfour Beatty had no contractual right to make IA24 or any subsequent application or to be paid in respect of any application from IA24 onwards.

Section 109 of the Housing Grants, Construction and Regeneration Act 1996 allows contracting parties to agree payment amounts and the intervals at which they become due for payment by instalments, stage payments or other periodic payments. If an agreement is not reached, section 109(3) states that the relevant provisions of the Scheme for Construction Contracts apply. The court viewed section 109(3) as not having any application to the contract since the agreed schedule set out the payment intervals and identified the mechanism to calculate the amounts.

The court decided that it was not possible to interpret the contract to include an implied term that allowed interim payments to continue after valuation 23. The court thought this would be inconsistent with the express terms of the contract, which specified 23 valuations. The court also believed that commercial common sense did not demand or justify implying a term about further interim payments after the practical completion date as it was foreseeable, prior to the contract commencing, that no interim payments were available if practical completion was not achieved on time. Therefore, Balfour Beatty could have negotiated terms giving it the right to further interim payments if there were delays.

Both parties were open to there being further interim payments but were still working towards an agreement. The court believed the parties’ correspondence showed that an agreement on the terms of further interim payments was a pre-condition to a concluded and legally binding agreement.

Balfour Beatty submitted that Grove Developments Ltd was estopped from challenging IA24–27, relying on Grove Developments issuing payment certificates. However, the court believed they had responded to Balfour Beatty’s applications so as to not alienate them, considering that there was already a delay.

The court commented that if there had been a contractual right to be paid and, as Balfour Beatty argued, the date for payment had been 21 August 2015, the pay less notice served on 15 September 2015 was in time.

Implications

This case shows that a contractor may not always have a contractual or statutory right to interim payments up to practical completion. If parties agree a schedule of interim applications and payments as part of their contract, they should be aware that this may override any implied right to receive interim payments beyond the final date agreed in such schedule, and should therefore also provide for the possibility of the contract overrunning. Failing to do so may mean that the contractor will have no contractual right to apply for further payments beyond the last interim application date agreed, until the final payment mechanism becomes available after practical completion.

In light of the difficulties that can often arise following applications for interim payment after practical completion, employers may well wish to consider agreeing a fixed number of valuation dates, so as to give certainty about when the payment cycle will end.

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.