Walker Morris has published the following article in its Adjudication Matters August 2015: Part 1

Following the 2011 amendments to the Construction Act 1996, if a paying party fails to serve a Payment Notice, or a Pay Less Notice, within the time limits stated in the contract, the amount claimed in the Application for Payment will automatically become the notified sum. The paying party has an obligation to pay the notified sum irrespective of the merits of the Application for Payment.

In 3 recent cases, the paying party tried to escape paying the notified sum by arguing that the Applications for Payment were not valid.

Two of the below arguments were successful, one wasn’t. Can you guess which? You might be surprised…

“Your Application is too early”

In the recent case of Leeds City Council v Waco UK Ltd [2015] EWHC 1400 (TCC), the Technology and Construction Court (TCC) has held that an Application for Payment was not valid because it was submitted earlier than the date stated in the contract between the parties and the parties had not agreed an alternative date.

Waco UK Ltd (Waco) made its Application for Payment no.21 (Application 21) on 22 September 2014, 6 days before the date stated in the contract between the parties of 28 September 2014.

Leeds City Council (LCC) did not issue a Payment Certificate or a Pay Less Notice.

Waco commenced adjudication for the amount applied for in Application 21 on the basis that this was the notified sum. The adjudicator found in Waco’s favour and ordered that LCC pay £484,759.50 plus VAT. LCC did not pay and Waco applied to the Court for summary judgment to enforce the adjudicator’s decision.

Summary judgment was not given. LCC was given leave to defend the application provided that they made payment of the sum awarded by the adjudicator to Waco by 7 April 2015. LCC made payment then applied to the Court for a declaration that Application 21 was not valid because it was served too early.

The parties’ conduct during Applications 1 to 20

The contract stated that after Practical Completion, Applications for Interim Payment would be made at intervals of 2 months, unless otherwise agreed.

The TCC found that the phrase “unless otherwise agreed” gave the Employer’s Agent authority to agree different dates for interim payments other than those stated in the contract. If the Employer’s Agent had acted in a way which led Waco to believe that Applications for Interim Payment would be accepted even if not made on the contractual valuation date, but on some other date then LCC could not resile from that understanding. There had to be some form of reliance by Waco on LCC’s/the Employer’s Agent’s conduct. In order to decide this point, the Court considered the conduct of the parties in the previous interim applications.

Waco’s previous Applications were almost always a few days later than the date provided for in the contract. These late applications were accepted by the Employer’s Agent. The Employer’s Agent expressly agreed with Waco that the December interim Application could be served early due to the contractual date falling within the festive season. The only other early Application was made in July 2014. This was paid by LCC.

The Court found that the acceptance of the early interim Application in July 2014, without this being previously agreed between the parties, did not amount to a representation that LCC would accept early interim Applications in the future. LCC had done nothing to make Waco think that the September 2014 Application would be accepted early. The Court said the Employer needs to have some idea of when an interim application is likely to be received so that he can ensure that he has the resources available in order to respond to it within the limited time that the contract allows – in particular, to consider and prepare any Payment Notice. The Contractor cannot simply make an Application whenever it wants.

As such, Application 21 was invalid and Waco was ordered to pay back the sums paid by LCC.

Contractors should ensure that their Applications for Interim Payment are made on the dates set out in the contract, or that variations to these dates are expressly agreed in writing with the Employer’s Agent.

In order to avoid making a representation that Applications will be accepted outside of the agreed dates, Employer’s Agents should record all agreed variations in writing and expressly state that this variation is a ‘one off’ and will not apply to future Applications.

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