Systems Pipework Ltd v Rotary Building Services Ltd18
The Defendant Rotary Building Services (“Rotary”) as M&E contractor, engaged the Claimant
Systems Pipework Ltd (“SPL”) as subcontractor, to supply and install various water systems at a
creamery in Devon. The subcontract was on Rotary’s standard conditions which in turn were
based loosely on industry standard terms.
A dispute arose concerning the final account. The subcontract provided
for SPL to submit “the Final Account” within 4 weeks of completion appending variation build
ups, relevant instructions and all pertinent information. SPL was not entitled to add to or
otherwise adjust its Final Account after submission.
Rotary would assess the Final Account and notify SPL within 13 weeks by way of a Final Account
Statement”, of the “value agreed in full and final settlement of all payments due…”. In the absence
of a Final Account submission from SPL, Rotary would value the proper amount due for payment on a
fair and reasonable basis and notify SPL accordingly. In either case, if such notification was not
dissented from in writing by SPL in 14 days, the notified figure would be deemed to have been
agreed and binding on the parties. The conditions provided that no payment would be due to SPL
until it had been agreed and confirmed in accordance with the (aforementioned) relevant
provisions.
SPL applied for payment by way of “a revised final account” for what (for administrative
convenience was called) “DC1 Works” and 5 days later it applied for an interim payment for “DC2
Works”. Rotary responded on 2 September 2016 with what was termed a “final account assessment” and
which it contended was both an assessment of value for DC1 Works and a final account valuation of
the DC2 Works (though it was not so identified or referenced at the time).
SPL referred the dispute over the value of the DC2 Works to adjudication and they stated the DC1
Works “do not form part of this Referral”. The adjudicator decided Rotary was liable to pay
£249,217.43 and that sum was later paid by Rotary.
Rotary then started a second adjudication seeking a declaration that SPL was bound by
the 2 September final account assessment. By then it was Rotary’s case that the time for
challenging its assessment had expired.
The adjudicator found that SPL was not bound by the assessment in so far as he had already
awarded a greater sum in the first adjudication but was bound by the remainder of the assessment.
SPL now sought a declaration from the Court to the opposite effect.
The Court had regard to the requirements of the subcontract. But it also took into account the now
established principles relating to interim payments: namely the need for a payment application to
be in form, substance and intent an interim payment application and free from ambiguity. On that
score Rotary’s September notice fell short of what was required. A notice intended to have
such a Draconian effect as Rotary’s notice must make clear what clause of the contract it was
issued under, and must set out the sum due. In fact neither the notice nor the accompanying letter
said it was a notification of the amount due. Instead it described itself as a Final Account
assessment. Nowhere was there identified a particular sum that was said to be due and payable. It
was no more than a purported assessment of the value of works carried out which was therefore only
one half of the exercise. The relevant clause of the subcontract was nowhere referred to. It was
also plain from Rotary’s own witness evidence, that the September documents were not
the notification of “an amount due”, but a Final Account assessment only, valuing the whole of the
works, without more. The fact that SPL might have been able by calculation to work out the amount
due was nothing to the point because that was precisely what the provisions of the
subcontract were there to obviate.
Had the Court found the notice to have been effective then it would have gone on to decide that the
act of commencement of adjudication proceedings by SPL satisfied the requirement to dissent by notice in writing within 14 days.
This article was originally written and published on the internet by Slater Heelis in June 2018.
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