Factual and Procedural Background
This judgment follows the trial of the Plaintiff's Part 8 claim seeking declaratory relief concerning two issues of contract construction arising from a contract dated 11 July 2013 between the Plaintiff, a developer, and the Defendant, a building contractor. The contract engaged the Defendant to design and construct a hotel and serviced apartments adjoining a complex in The City. The contract sum was £121,059,632 and was based on the JCT Design and Build Contract 2011 with bespoke amendments.
The works commenced in July 2013 with a defined completion date of 22 July 2015. The works were not completed by that date and remain incomplete, though the reasons for delay are not relevant to the present issues. The parties agreed a schedule of 23 valuation and payment dates from September 2013 to July 2015 ("the agreed Schedule") governing interim applications and payments during that period.
After the period covered by the agreed Schedule, on 21 August 2015, the Defendant issued an application for a further interim payment ("IA24") claiming £23,166,425.92 plus VAT. The Plaintiff served a Payment Notice and a Pay Less Notice in response. The Defendant contended it was entitled to issue IA24 and that the Plaintiff failed to serve valid notices within the contractual time limits, entitling the Defendant to the full sum claimed. The Plaintiff argued that the Defendant had no contractual right to issue or be paid for IA24, rendering the notice regime irrelevant; alternatively, that the Pay Less Notice was valid and timely.
The Plaintiff commenced these Part 8 proceedings to obtain declarations on these issues, intending to resolve key questions of contract construction and law that had arisen in related adjudication proceedings initiated by the Defendant. The adjudicator issued a decision on 11 January 2016, ordering the Plaintiff to pay a further sum, but the Plaintiff challenged the adjudicator's appointment and sought a definitive court ruling.
Legal Issues Presented
- Did the Defendant have a contractual right to make IA24 (or any subsequent interim application) and to be paid in respect thereof?
- If so, on a proper construction of the contract, what was the final date for payment in respect of such application(s) and did the Plaintiff serve a valid Pay Less Notice?
Arguments of the Parties
Plaintiff's Arguments
- The Defendant had no contractual right to make IA24 or any subsequent interim application, as the agreed Schedule provided for only 23 interim payments, and no further interim payments were agreed.
- The notice regime is irrelevant if the Defendant lacked the contractual right to make IA24.
- Alternatively, the final date for payment was 18 September 2015, making the Plaintiff's Pay Less Notice of 15 September 2015 valid and timely.
- The Plaintiff denied estoppel and asserted that any Payment Certificates issued were equivocal and did not amount to a waiver of its contractual position.
Defendant's Arguments
- The Defendant contended it was entitled to issue IA24 and subsequent interim applications despite the agreed Schedule ending at valuation 23.
- It argued that the parties continued to negotiate and impliedly agreed to further interim payments beyond the agreed Schedule.
- The Defendant asserted that the final date for payment was earlier than the Plaintiff contended, relying on the Scheme for Construction Contracts and a calculation that the final payment date was 7 September 2015.
- The Defendant claimed the Plaintiff's Payment Certificate and Pay Less Notice were invalid due to late issuance.
- The Defendant also relied on estoppel by convention, asserting both parties operated under the mistaken assumption that further interim payments were due.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 |
Principles of commercial contract construction. |
Listed among authorities establishing principles of contract interpretation. |
| Wickman Machine Tool Sales Ltd v L Schuler AG [1974] AC 235 |
Contractual interpretation principles. |
Included in the list of relevant authorities on contract construction. |
| Arbuthnot v Fagan [1995] CLC 1396 |
Contract interpretation. |
Referenced as part of standard principles. |
| Charter Re v Fagan [1997] AC 313 |
Contractual interpretation. |
Included in the list of authorities. |
| Mannai Investments v Eagle Star [1997] AC 749 |
Contract construction principles. |
Referenced for interpretive principles. |
| ICS v West Bromwich BS [1998] 1 WLR 896 |
Contract interpretation. |
Listed among relevant authorities. |
| Gan Insurance v Tai Ping [2001] CLC 1103 |
Contract construction. |
Included in the authorities cited. |
| Chartbrook v Persimmon [2009] AC 1101 |
Contractual interpretation. |
Referenced for principles of construction. |
| Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 |
Interpretation of commercial contracts. |
Included in the list of principles. |
| Andrew Wood v Sureterm Direct Ltd & Capita Insurance Services Ltd [2015] EWCA 839 |
Contract interpretation. |
Listed among authorities. |
| Marks and Spencer v BNP Securities Services Trust [2015] UKSC 72 |
Principles of contract construction. |
Referenced for interpretive guidance. |
| Arnold v Britton [2015] AC 1619 |
Commercial common sense in contract interpretation. |
Emphasised the court's caution in departing from natural language and the timing of commercial common sense. |
| RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH [2010] BLR 337 |
Contract formation in stages and intention to create legal relations. |
Applied to reject the Defendant's submission that agreement on further interim payments was concluded absent agreement on terms. |
| Williams v Roffey [1991] 1 QB 1 |
Consideration and practical benefits in contract variation. |
Referenced regarding the Plaintiff's commercial benefit in maintaining the Defendant's cash flow despite disputes. |
| Yuanda (UK) Co Ltd v WW Gear Construction [2010] BLR 435 |
Application of Construction Act provisions and Scheme. |
Applied to distinguish the incorporation of adjudication provisions from payment provisions under the Act and Scheme. |
| Hills Electrical & Mechanical v Dawn Construction Ltd [2004] SLT 477 |
Interpretation of payment provisions under the Construction Act and Scheme. |
Followed in holding that Scheme payment provisions only supplement contract provisions where gaps exist. |
Court's Reasoning and Analysis
The Court considered the contractual framework, focusing on the agreed Schedule which specified 23 interim payment dates and governed payments until July 2015. The Court found that the parties had not agreed further stage payments beyond valuation 23, and the agreed Schedule effectively amended the original contract terms to limit interim payments to those 23 stages.
The Court rejected the Defendant's argument that the agreed Schedule's wording implied an ongoing, indefinite series of interim payments beyond valuation 23, finding that the Schedule was a definitive list of agreed payments. It also rejected any implied term that interim payments would continue beyond valuation 23, reasoning that such an implication would contradict the express terms and was not commercially necessary or sensible.
The Court examined the parties' post-agreed Schedule correspondence and negotiations, finding no concluded agreement on further interim payments. It held that agreement on further interim payments required agreement on terms, which was not reached. The Defendant's estoppel argument was dismissed as an attempt to use estoppel offensively rather than defensively, and Payment Certificates issued by the Plaintiff were deemed equivocal and insufficient to establish estoppel.
Accordingly, the Court concluded that the Defendant had no contractual right to make or be paid in respect of IA24 or any subsequent interim applications.
Addressing the second issue hypothetically, the Court accepted for argument that if a contractual right existed, the final date for payment would either be 25 September 2015 (if the agreed Schedule continued to apply) or 18 September 2015 (if the Schedule no longer applied and Clause 4.9.1 governed). The Court found no basis to replace the contractual Pay Less Notice timing with the Scheme's provisions and held the Pay Less Notice issued on 15 September 2015 was timely if the earlier final date applied.
The Court rejected the Defendant's retrospective analysis in its 30 September letter as incorrect and held that the Defendant was estopped from asserting those later dates, based on its prior representations of the final payment date.
The Court did not decide whether the Plaintiff's Payment Certificate constituted a valid Pay Less Notice, finding it unnecessary.
Holding and Implications
The Court's final ruling was that the Defendant had no contractual right to make or be paid in respect of IA24 or any subsequent interim payment applications. Consequently, the Plaintiff's Pay Less Notice was effective and timely in the alternative scenario.
The direct effect is that the Defendant's claim for payment under IA24 is dismissed. No broader precedent altering contract construction principles or the application of the Construction Act was established. The decision clarifies that an agreed schedule of interim payments limits the contractor's entitlement to further interim payments absent express agreement to extend such payments.