Payment procedures

There have been numerous cases which deal with payment provisions and many of those cases deal with the parties’ actions and whether they have complied with the payment procedures. One such case is Leeds City Council v. Waco UK [2015], for which the decision may surprise some but act as a reminder to others.

In this case, the Council and Waco had entered into an amended JCT Design and Build Contract, 2005 Edition Revision 2 2009 for a school in Leeds. The contract required Waco to make monthly interim applications for payment on specified dates until practical completion and thereafter every two months “unless otherwise agreed”.

Before practical completion, Waco made a number of applications and generally these were not made on the contractually specified dates, but a few days after. Nevertheless, the employer’s agent mostly ignored these irregularities and certified payment.

After practical completion, Waco made three applications which again were not made on the correct dates, but the employer’s agent did not object.
The issue before the Court was whether an interim application for payment made after practical completion on 22 September 2014 was valid despite it being issued six days before the contractual date. If it was valid then it would be payable as the employer’s agent had not issued the relevant notices.

The Court decided that the conduct of the parties had resulted in there being an implied term that Waco could submit an application on or within three to four business days after the contractually specified dates. This meant that the Council was entitled to reject applications which were issued outside this period and/or which were issued early. It should be noted that the Council had paid one application early, but the Court did not consider that this was enough to establish a course of conduct.

What Leeds City Council v. Waco UK [2015] shows is that, whether you are an employer or a contractor you should be following the contract as otherwise you may end up in a costly argument as to whether the parties’ actions had varied the contract.

Payment interpretations
Another recent case which deals with payment procedures is Caledonian Modular v. Mar City Developments [2015]. Caledonian Modular was appointed by Mar City under a letter of intent dated 19 December 2013, to carry out extensive construction works at a site in North London. The letter of intent contained no payment or adjudication provisions, and so the Scheme for Construction Contracts was implied.

Caledonian Modular had made 14 interim applications in the same format: a letter attaching the details of the application, the total amount due, the amount previously certified, the net amount due, the date a payment notice was to be received from Mar City, and the date for final payment. The interim applications were also made towards the end of the each successive calendar month.

On 30 January 2015, Caledonian Modular issued application for payment number 15 which followed the format of the previous applications issued. It identified the last date for a payment notice to be issued was 5 February 2015, with the final date for payment being 28 February 2015.

Mar City emailed a payless notice to Caledonian Modular on 5 February 2015 and on 13 February 2015, Caledonian Modular e-mailed Mar City, disagreeing with its valuation. Then on 19 March 2015, Caledonian Modular issued an invoice, to which Mar City responded with a payless notice on 26 March 2015.

The issue before the Court was whether the 13 February 2015 e-mail was a new application for payment, and if so, whether the invoice issued on 19 March 2015 was a notice of default. If this was the case, then Mar City’s payless notice sent on 26 March was out of time.

The Court decided that the 13 February 2015 e-mail was not an application for payment or a valid payee’s notice for the following reasons – it did not state it was a new application for payment, the invoice of 19 March 2015 did not say that it was a default payment notice or that the original application for payment had been made on 13 February 2015, and Mar City had in fact asked Caledonian Modular what the 13 February 2015 documents were, to which Caledonian Modular had responded that the documents were updates. The judge also pointed out that the purported application of 13 February 2015 came in the middle of the month, rather than at the end, as all previous applications had done.

What Caledonian Modular v. Mar City Developments [2015] shows is that if you are issuing an application for payment make clear on it that it is an application for payment so that the payment period is triggered.

There is no ‘new’ law in either of these cases, however they act as a useful reminder and it is clear that the Court expect contractors to set out their interim payment claims with clarity and in accordance with the payment cycle. If an application for payment is issued early, the Court is unlikely to look on it too kindly.