Factual and Procedural Background
By a contract dated 24 October 2016, Company A agreed to install two 132kV cables and associated ductwork between two locations in The City to the order of Company B. The works have been completed and, by this action, Company A claims £1,521,087.09 as the alleged final balance payable together with damages. Company B contends that such claim is not arguable because Company A's contractual entitlement was only to a series of interim payments. Company B therefore seeks to strike out the claim or alternatively enter summary judgment against Company A.
The contract incorporated a Pricing Schedule submitted by Company A with its tender, setting out the price for each element of the main route, costs of additional works, and rates for extra materials, comprising a total tender value of £3,981,406.74. The contract included provisions for interim payments, retention of 5%, and clauses governing valuation, additional payments for unforeseen obstructions, delay and extra costs, and payment terms including invoicing and retention release.
During the works, Company A submitted eleven payment applications, with the eleventh disputed and adjudicated in a reduced sum in favour of Company A. Company A then issued a twelfth and final application based on a re-measurement of the works, seeking over £1.8 million. Company A pleads that the works were disrupted by unforeseen obstructions due to Company B's failure to provide adequate ground investigations and complete design information, breaching contractual obligations to provide necessary instructions and information. Company A further pleads implied terms regarding reasonable time for completion and entitlement to a reasonable sum based on re-measurement, as well as duties on Company B to act fairly in certifying variations and to certify practical completion promptly.
Company B applied to strike out the claim or alternatively for summary judgment, arguing that the contract was a lump-sum contract with entitlement only to interim monthly invoices and no implied term entitling Company A to raise a final account. Company A contended that the payment regime was inadequate without provision for a final account, and that this issue should be determined at trial given factual disputes.
Legal Issues Presented
- Whether the contract provided an adequate mechanism for determining what payments became due and when, pursuant to section 110 of the Housing Grants, Construction & Regeneration Act 1996.
- Whether there was an implied term under section 110 of the 1996 Act entitling Company A to submit a final payment application beyond interim payments.
- Whether the claim should be struck out for disclosing no reasonable grounds or alternatively whether summary judgment should be granted in favour of Company B.
Arguments of the Parties
Company B's Arguments
- The contract was a lump-sum contract entitling Company A only to raise interim monthly invoices commensurate with actual progress and any extras or variations.
- There was no express or implied term allowing a final account payment application.
- The absence of a final payment provision did not render the payment regime inadequate under section 110 of the 1996 Act.
- Section 109-110 do not require a final payment provision; reliance on standard form contracts such as NEC3 supports this.
- The claim should be struck out or summary judgment granted as Company A has no real prospect of success.
Company A's Arguments
- It is properly arguable that the payment regime was inadequate due to the absence of a final account provision, triggering implication of terms under section 110 of the 1996 Act.
- Provision for a final account is customary and important in construction contracts.
- Adequacy of the payment mechanism is a factual issue and cannot be resolved on strike out or summary judgment.
- The absence of a valuation method for interim payments and lack of employer obligation to review or correct interim valuations renders the mechanism inadequate.
- Relied on the Scottish case Maxi Construction Management Ltd v. Mortons Rolls Ltd as authority for the inadequacy of certain payment mechanisms.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Price Meats Ltd v. Barclays Bank plc [2000] 2 All ER (Comm) 346 |
Grounds for striking out claims that disclose no reasonable cause of action. |
Referenced as part of the principles governing strike out applications under CPR r.3.4(2)(a). |
| Harris v. Bolt Burdon [2000] CP Rep 70 |
Strike out where claim or defence is bound to fail. |
Referenced as authority for strike out principles. |
| Hughes v Colin Richards & Co. [2004] EWCA Civ 266 |
Strike out principles and no reasonable grounds to proceed. |
Referenced in strike out context. |
| Royal Brompton Hospital NHS Trust v. Hammond [2001] EWCA Civ 550 |
Focus on pleadings in strike out applications and evidence in summary judgment. |
Applied to distinguish approach between strike out and summary judgment applications. |
| Easyair Ltd v. Opal Telecom Ltd [2009] EWHC 339 (Ch) |
Principles for summary judgment including realistic prospect of success. |
Used to guide summary judgment analysis. |
| Swain v. Hillman [2001] 1 All ER 91 |
Definition of realistic vs fanciful claims for summary judgment. |
Referenced for summary judgment threshold. |
| ED & F Man Liquid Products v. Patel [2003] EWCA Civ 472 |
Realistic claim standard and evaluation of factual assertions. |
Referenced in summary judgment context. |
| Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63 |
Summary judgment and the need for fuller factual investigation at trial. |
Referenced to caution against premature summary judgment in complex factual disputes. |
| ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725 |
Limits on summary judgment where further evidence may emerge. |
Referenced to illustrate when cases should proceed to trial. |
| Maxi Construction Management Ltd v. Mortons Rolls Ltd (2001) Scot (D) 12/8 |
Inadequacy of payment mechanisms requiring agreement of valuations before payment claims. |
Distinguished by the court as concerning a very different contract and not applicable here. |
| Grove Developments Ltd v. Balfour Beatty Regional Construction Ltd [2016] EWHC 168 (TCC) |
Contractual entitlement to interim payments and final account provisions. |
Relied on by Company B; court found it did not directly assist on adequacy of payment mechanisms without final account provisions. |
| CIMC MBS Ltd v. Bennett (Construction) Ltd [2019] EWCA Civ 1515 |
Purpose of ss.109-110 of the 1996 Act to ensure transparent payment mechanisms including final payment. |
Used to support a holistic view of payment mechanism adequacy under s.110. |
| Henry Boot Construction Ltd v. Alstom Combined Cycles Ltd [2005] EWCA Civ 814 |
Distinction between interim certificates and final certificate entitling payment. |
Referenced to explain nature of interim payments as provisional and final payments as conclusive. |
| Secretary of State for Transport v. Birse-Farr Joint Venture (1993) 62 B.L.R. 45 |
Nature and effect of interim payment certification. |
Referenced to illustrate interim payments as provisional progress payments. |
| Mair v. Mohammed Arshad [2007] ScotSC 60 |
Adequacy of payment mechanisms is a question of fact depending on contract complexity. |
Applied to support that adequacy cannot be decided as a matter of law without trial. |
Court's Reasoning and Analysis
The court began by outlining the legal standards for strike out under CPR r.3.4(2)(a) and summary judgment under Part 24, emphasizing the high threshold for strike out and the requirement that summary judgment be granted only in clear cases without real factual disputes.
Sections 109 and 110 of the Housing Grants, Construction & Regeneration Act 1996 require construction contracts to provide adequate mechanisms for determining payment entitlements and final payment dates. The court found that the contract complied with section 109 by providing for monthly interim payments and clearly identified payment dates, including retention provisions.
The court rejected Company A’s argument that the absence of a valuation method for interim payments or an obligation on Company B to review interim valuations rendered the payment mechanism inadequate. The Scottish case relied upon was distinguished as involving a fundamentally different contractual arrangement.
While acknowledging that some contracts include explicit final account provisions, the court held that the 1996 Act does not mandate such provisions and that adequacy of payment mechanisms must be assessed holistically and factually. The court cited authority that the adequacy question depends on the complexity of the contract and the factual matrix.
The court noted that the contract was arguably a fixed price contract with variations valued against agreed rates, and that a simple mechanism of monthly interim payments might be adequate, even if inconvenient for valuing variations or extra costs.
Given the outstanding factual disputes about design adequacy, risk allocation, and valuation, the court concluded it could not be certain that Company A’s claim was hopeless or that Company A had no real prospect of success.
Holding and Implications
The court DISMISSED Company B's application to strike out the claim or alternatively to enter summary judgment in its favour.
The direct effect of this decision is that Company A's claim may proceed to trial to resolve the factual and legal disputes concerning the adequacy of the payment mechanism and entitlement to a final payment. The court did not set any new precedent but reaffirmed that adequacy under section 110 of the 1996 Act is a fact-sensitive issue not suitable for resolution on strike out or summary judgment where material disputes exist.