England and Wales High Court (Technology and Construction Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		St Dunstan's House 133- 137 Fetter Lane London EC4A 1HD
		7th December 2009

Mr Justice Coulson:

INTRODUCTION

1. Donald Keating always advised parties who intended to sign up to construction contracts that they should either use an unamended standard form of contract, or their own homemade contract conditions, and that to attempt a mixture of both was usually a recipe for disaster. This case, arising out of a contested adjudication decision, a CPR Part 8 claim for declarations by one party and a CPR Part 7 claim for enforcement of that decision by the other, is a graphic demonstration of the wisdom of that advice. It also raises a point of wider interest as to the proper approach to be adopted by a party who has lost an adjudication on a point of law.
2. By a contract dated 1st February 2008, Fenice Investments Incorporated ("Fenice") engaged Jerram Falkus Construction Limited ("JFC") to design and construct five residential properties and a commercial unit at a site in Loudoun Road, Camden, in North London. Disputes arose in connection with JFC's application for interim payment No. 19. These disputes centred on whether Fenice had issued a payment notice and/or a withholding notice in time, which in turn depended on the proper construction of the contract.
3. The dispute was referred to adjudication and the adjudicator decided that JFC's construction of the contract was correct, such that the payment notice and the withholding notice were indeed out of time. He ordered Fenice to pay JFC £177,455.94. Fenice have paid just £12,202.45 and, on 12th November 2009, they issued proceedings under CPR Part 8 for declarations in respect of their interpretation of the contract terms. The following day, 13th November 2009, JFC issued their own Part 7 claim and an application for summary judgment under CPR Part 24 in respect of the sums found due by the Adjudicator.
4. The issues between the parties can be summarised as follows.

(a) What is the proper construction of the interim payment provisions in the contract?

(b) Do those provisions comply with the Housing Grants (Construction & Regeneration) Act 1996 ("the Act")?

(c) What is the proper course to be adopted by a party who has been required to pay a sum of money by an adjudicator but who has a bona fide point of law to raise in connection with that decision?

Having set out the relevant terms of the contract and the material facts, I deal with those issues in turn below.

THE CONTRACT

5. The contract incorporated the JCT Design & Build Contract (Revision 1) 2007. These terms were also the subject of certain specific amendments agreed by the parties. The employer's agent was named as Sawyer & Fisher. Alternative B was the chosen method of payment.
6. The provisions of the JCT contract as amended, which are relevant to these disputes, were as follows:

"1.3 The Agreement in these Conditions are to be read as a whole but nothing contained in the Employer's Requirements, the Contractor's Proposals or the Contract Sum Analysis shall override or modify the Agreement or these Conditions.

……

4.9.2 Where Alternative B applies, Applications for Interim Payment shall be made on the dates provided for in Alternative B in the Contract Particulars up to the date named in the Employer's Practical Completion Statement or the date within one month thereafter. Applications for Interim Payment thereafter shall be made as and when further amounts are due to the Contractor and upon whichever is the later of the expiry of the Rectification Period or the Issue of the Notice of Completion of Making Good… provided always that the Employer shall not be required to make any Interim Payment within one calendar month of having made a previous Interim Payment.

4.9.3 Each Application for Interim Payment shall be accompanied by such details as may be stated in the Employer's Requirements.

Interim Payments

4.10.1 The final date for payment of an Interim Payment shall be 21 days from the date of receipt by the Employer of the Application for Interim Payment …

4.10.3 Not later than five days after the receipt of an Application for Interim Payment, the Employer shall give a written notice to the Contractor which shall, in respect of that Application for Interim Payment, specify the amount of the payment proposed to be made, to what the amount of the payment relates and the basis on which that amount was calculated.

4.10.4 Not later than five days before the final date for payment, the Employer may give a written notice to the Contractor which shall specify any amount proposed to be withheld and/or deducted from the amount due, the ground or grounds for such withholding and/or deduction and the amount of withholding and/or deduction attributable to each ground.

4.10.5 Subject to any notice given under 4.10.4, the Employer shall no later than the final date for payment pay the Contractor the amount specified in the notice given under clause 4.10.3 or, in the absence of a notice under clause 4.10.3, the amount due to the Contractor as determined in accordance with clause 4.8 …"

7. The relevant dates for the payments due pursuant to Alternative B were described in the contract appendix as:

"The first date shall be one month after the commencement of the CDM Planning Period and thereafter the same date in each month or the nearest business day in that month".

The evidence is that JFC had taken possession of the site on 3rd March 2008 and that JFC's first application for an interim payment was made on 7th March 2008. This indicates that subsequent applications were going to be made on or around 7th of each month.

8. The Employer's Requirements, which was of course a contract document, also contained provisions dealing with interim payments. Section 15 was headed "Evaluation Procedure" and provided as follows:

'Interim payments shall be made monthly by the Employer to the Contractor in accordance with section 4 and Alternative B of the contract conditions.

The evaluation procedure shall be as follows:

a) Contractor to submit to the quantity surveyor his valuation of the work properly executed, any design work carried out and materials and goods delivered to site three days prior to the agreed on site valuation meeting date.

b) The quantity surveyor shall review with the contractor and issue an interim valuation recommendation to the Employer's Agent and Contractor.

c) Employer's Agent to issue interim certificate to the Employer and Contractor within 5 days of the date of issue of interim valuation recommendation. For the purpose of the contract, "the date of receipt by the employer of the application for an interim payment" shall be the date of issue of the interim certificate.

d) The Contractor upon receipt of the Employer's Agent interim certificate shall issue a VAT invoice to the Employer.

e) The Employer upon receipt of the Employer's Agent interim certificate and Contractor's VAT invoice will pay the Contractor within 21 days of the date of issue following the interim certificate in accordance with clause 4.10.1.'

THE EVENTS SURROUNDING APPLICATION 19

9. JFC submitted Application 19 on 6th August 2009 in the gross sum of £4,209,382.94. This amounted to an application for a net sum of £206,564.74. By reference to clause 4.10.1 of the JCT conditions (see paragraph 6 above), it is JFC's case that the final date for the payment of that sum was 27th August 2009, i.e., 21 days later. Thus they said, in accordance with Clause 4.10.3, the written notice of payment was due by 11^th August and that, pursuant to clause 4.10.4, a withholding notice had to be served five days before 27^th August, namely by 22nd August 2009.
10. On 25th August 2009, Sawyer & Fisher, the Employer's Agent, wrote two letters to JFC. The first enclosed a certificate for payment. This was in the standard JCT interim certificate form. It stated that the certificate was issued on 21st August 2009, although in fact it appears that the certificate was not actually issued until the 25th. It was in the gross sum of £4,176,583, and it certified as a payment a net sum of £71,473. The second document, which was referred to on the face of the letter enclosing the certificate of payment, was in these terms:

"We refer to your Application for payment No. 19 dated 6th August 2009.

This letter is a notice of withholding and is served pursuant to clause 4.10.4 of the Building Contract dated 1st February 2008.

The notice reflects the Employer's entitlement to withhold the sum of £163,480 from the sum of £71,473, being the sum which has been notified to you as the sum due in the notice/valuation pursuant to clause 4.10.3. The Employer require you to pay the remainder of the sum due, i.e., £92,007, as under clause 2.29.2.1.

The sum which is withheld from you/required to pay is therefore £163,480. The ground for withholding this sum is as follows:

(1) Liquidated damages for extended duration of the work beyond non-completion date:

67 calendar days x 2,440 = £163,480."

11. The effect of the certificate and the withholding notice was that no sum at all was paid by Fenice to JFC as a result of Application 19. As noted in paragraph 9 above, JFC said that, pursuant to clause 4.10.3, the payment notice was out of time, and that, pursuant to clause 4.10.4, the 25th August withholding notice was also out of time. They, therefore, sought payment of the sum applied for on 6^th August, which they said was due by 27^th August at the latest. Fenice, on the other hand, contended that the notices were not out of time and were in accordance with section 15 of the Employer's Requirements. They maintained that if, in accordance with that provision, the date of receipt of the JFC application was the date of the interim certificate, then receipt of the application was 21st August (that being the date of issue on the face of the certificate) and the final date for payment under clause 4.10.1 was 21 days later, on 12th September. That meant the final date for the withholding notice was 7th September and resulted in the submission that the withholding notice of 25th August was issued well within the necessary time.
12. JFC referred its claim for £206,564.74 to adjudication. Dr Franco Mastrandrea, the well known adjudicator and arbitrator, was appointed to resolve that dispute. By a decision, dated 3rd November 2009, the adjudicator concluded that JFC were entitled to £177,455.94 plus interest. His decision sets out his reasons why the provisions of clause 4.10 were in conflict with section 15 of the employer's requirements and how, in accordance with clause 1.3, the conflict had to be resolved in favour of the JCT terms and not the Employer's Requirements. Thus he decided the dispute in favour of JFC. He awarded them less than they had originally sought, however, because of issues concerned with delay which are not relevant to my decision today.
13. Fenice did not pay the £177,455.94 plus interest. In my judgment, regardless of the rights and wrongs of the contract issue, there was no justifiable excuse for that non-payment: see Carillion Construction Limited v Devonport Royal Dockyard Limited [2003] BLR 79. Fenice were therefore in breach of clause 9.2 of the contract and paragraph 23.2 of Part I of the Scheme for Construction Contracts SI 1998 No. 649 ("the Scheme"). This is a point to which I return below. Fenice did however pay the sum of £12,202.45. This sum was calculated by taking the £177,455.94 awarded by the adjudicator and deducting from it the sum said in the withholding notice of 25^th August to be due to Fenice by way of liquidated damages, namely £163,486.
14. As noted above, Fenice waited nine days after the issue of the adjudicator's decision before commencing these Part 8 proceedings. In those proceedings, they seek six different declarations, although those all boil down to the same central position: that, on a proper construction of the contract (i.e., section 15 of the Employer's Requirements), the payment notice/certificate and the withholding notice of 25th August were served in time and operated as a complete defence to the claim based upon Application 19 and the adjudicator's decision. On 13th November, JFC commenced their own claim for the £177,455.94 plus interest. Ramsey J gave directions leading up to this hearing and these two sets of proceedings were consolidated on 24th November 2009.

THE RELATIONSHIP BETWEEN CLAUSES 4.9 AND 4.10 OF THE JCT TERMS AND SECTION 15 OF THE EMPLOYER'S REQUIREMENTS

15. Clauses 4.9 and 4.10 of the JCT Standard Form are in a relatively common form. They envisage the following:

(a) a monthly application for an interim payment by the contractor pursuant to clause 4.9.2;

(b) consideration of that application by the employer and his agent, and a written notice from the employer (which, as it was here, will often be in the form of an interim certificate) specifying the amount to be paid to the contractor within five days of the application, pursuant to clause 4.10.3;

(c) consideration by the employer and his agent of whether and if so what grounds there may be for withholding sums otherwise due pursuant to the interim certificate, and a written notice specifying any amount to be withheld to be provided by the employer to the contractor not less than five days before the final date for payment, pursuant to clause 4.10.4; and

(d) payment of the amount certified, less any sum validly withheld, 21 days after the original application, pursuant to clause 4.10.1.

16. To what extent, if at all, can section 15 of the Employer's Requirements be comfortably read with, and as part of, this process? Looking at each stage again, this time by reference to section 15 as well, it seems to me that the following is the result:

(a) Section 15a) envisages a monthly application by the contractor. There is, therefore, no conflict between section 15a) of the Employer's Requirements and clause 4.9.2 of the JCT conditions.

(b) Section 15b) envisages a review by the employer's quantity surveyors. Although not expressly referred to in clause 4.10.3, it seems to me highly likely that, in considering the amount of any interim certificate, the employer's agent will have taken the advice of a quantity surveyor. Indeed, in this case, the employer's agent, Sawyer & Fisher, were themselves quantity surveyors. Again, therefore, it seems to me that there is no conflict between section 15b) of the Employer's Requirements and the mechanism referred to in clause 4.10.3 of the JCT conditions.

(c) Section 5c) of the Employer's Requirements provides that the interim certificate will be issued five days after the issue of the employer's quantity surveyor's interim valuation recommendation. Clause 4.10.3 says that the interim certificate (or the written notice of payment as it is there described) must be issued five days after the employer's receipt of the contractor's application. Since the quantity surveyor cannot begin his evaluation until after receipt of the contractor's application, so that any certificate or payment notice will always be later than the contractor's application on which it is based, these two provisions would seem, on the face of it, to be in conflict. This point is examined in more detail below.

(d) Sections 15d) and 15e) of the Employment's Requirements introduce a new requirement, not set out in clauses 4.9 and 4.10 of the JCT conditions, that suggests that no sum will be paid until the employer has received a VAT invoice from the contractor. That does not necessarily mean that there is a conflict between the two provisions, but it would appear to suggest that section 15 is, at the very least, providing some degree of modification to the contractual conditions.

17. On a closer analysis, the conflict identified in paragraph 16(c) above can be seen to be fundamental and, in my judgment, would lead to an unworkable set of contract provisions.
18. It is fundamental because it affects the starting point, and thus the end point, of the payment mechanism. Under clauses 4.9 and 4.10, the starting point is the contractor's interim application for payment, which must be made in accordance with the monthly timetable provided for in Alternative B. Under section 15, on the other hand, the starting point is the issue of the interim certificate by the employer or his agent. Moreover, under the section 15 procedure, there is no time stipulated at all for the period between the application by the contractor and the conclusion of the evaluation process by the quantity surveyor, leading to his recommendation to the employer's agent. The quantity surveyor could take a week or he could take a month to perform this task: there is nothing in the contract that provides any fixed time at all.
19. In this way, so it seems to me, the certainty and the promptness envisaged by and provided for in clauses 4.9 and 4.10 (which are themselves a reflection of the Act), would be entirely lost. Instead of a swift procedure with a clear start date, there is a more drawn-out procedure where the start date is wholly uncertain and entirely within the gift of either the employer or his quantity surveyor. It seems to me that those provisions could not possibly be read together: they are fundamentally in conflict.
20. During the course of argument, Mr Webb accepted that section 15 of the employer's requirements would have the effect, at the very least, of extending the periods and the dates in clause 4.10, and even then he had to rely on a reasonable term of 7 or 14 days as being somehow implied into the contract as the quantity surveyor's time for consideration and evaluation. Even on that case, therefore, the contract terms were significantly modified, if not substantially changed, by section 15 of the Employer's Requirements.
21. As noted above, I also consider that section 15 would make clause 4.10 unworkable. The way that the conflict is addressed in section 15 is in the attempt to define the date of receipt of the application from the contractor as the date of the interim certificate or written notice of payment from the employer's agent. Using that definition, clause 4.10.3 would provide that 'Not later than five days after the issue of the written notice/interim certificate, the employer shall give a written notice/interim certificate …' That is meaningless and unworkable. It is the inevitable consequence of describing one contractual event (receipt of the contractor's application) in terms which are factually incorrect when applied to that event, but which do constitute a correct description of a completely different contractual event, i.e., the issue of the certificate or notice with the evaluation of the application contained within it.
22. Mr Webb's answer to this, when I put the point to him, was to say that the interim certificate was not the same as the written notice of payment and that the latter would come five days after the interim certificate and may be in a different sum. It seems to me that this response merely revealed the extent of the difficulties inherent in trying to read these provisions together. Clause 4.10 makes plain that the key document is the written notice of payment and it makes no reference to, or provision for, an interim certificate at any earlier stage between the contractor's application and the payment notice. Indeed, it is impossible for there to be such a stage given the five day period stipulated. What is more, the letter from Sawyer & Fisher of 25th August, which is said to be the withholding notice, refers to the sum in the certificate as being "the sum which has been notified to you as the sum due in the notice/valuation pursuant to clause 4.10.3". That would seem to me unequivocally to equate the written notice in clause 4.10.3 with the interim certificate.
23. In addition, section 15 of the Employer's Requirements makes no reference to or provision for a written notice of payment arising after the certificate. Indeed, the mechanism described in section 15 is quite inconsistent with a further stage involving a written notice, given that payment under section 15 is expressly based on the certificate and not any later payment notice. In that context, I note that section 15e) says that the payment would be made "on the interim certificate". Accordingly, on that further analysis of clause 4.10 of the JCT terms and section 15 of the Employer's Requirements, prompted by Mr Webb's oral submissions, I am confirmed in my conclusion that these provisions can not be read together.
24. For all these reasons, therefore, I consider that section 15 of the Employer's Requirements is in conflict with clauses 4.9 and 4.10 of the JCT conditions. They ultimately contain two different mechanisms for payment. In the absence of authority, therefore, I would conclude that I have to choose between them, and apply one or the other. It is impossible to read them together and come up with a rational or workable result.
25. How then does the Court choose between these two different sets of provisions? The answer, so it seems to me, is found in clause 1.3 of the JCT conditions, which I have set out at paragraph 6 above. Clause 1.3 is a clear hierarchy clause, designed expressly to deal with a conflict of this sort. It would have the inevitable effect that, just as the adjudicator found, clauses 4.9 and 4.10 of the JCT conditions would take precedence over the Employer's Requirements. The question then becomes whether there are any authorities or principles of law that would oblige me to reach a different conclusion?

PRECEDENCE OF CONTRACT DOCUMENTS AND CONTRACT TERMS

26. It is a well known rule of contract construction to the effect that, all other things being equal, a term specifically drafted for a particular contract will take precedence over a standard term: see Homburg Houtimport B.V. v Agrosin Private Ltd. (The Starsin) [2004] 1 AC 715.
27. It is important to note that this rule does not apply to every contract. The rule can be negated by express terms: see Gold v Patman and Fotheringham Ltd [1958] 1 WLR 697 at 701 and Northwest Regional Metropolitan Hospital Board v TA Bickerton & Sons Ltd [1970] 1 WLR 607 at 617. In his book The Interpretation of Contracts (4th Edn), Sir Kim Lewison describes the general rule as being subject to the proviso "unless the contract provides otherwise": see page 250.
28. I am in no doubt, as I have indicated, that clause 1.3 was a provision that negated the effect of the general rule. Terms such as clause 1.3 are of particular importance in building contracts, where the impression can sometimes be given that the draftsman has included in the contract every piece of paper in his office that related, no matter how tangentially, to the project in question. Some form of hierarchy or precedence is vital in those circumstances and it was provided in the present case by clause 1.3.
29. Moreover, it seems to me that there can be no unfairness or injustice in holding the parties to their agreement of clause 1.3, in circumstances where, as here, the parties expressly amended clause 4.10, for instance by changing the JCT period of 14 days in clause 4.10.1 to 21 days. They could, therefore, have amended clause 4.10 to incorporate the provision at section 15 had they chosen to do so, although, as we have seen, that would have involved a very heavily amended set of provisions in order to achieve a workable result, and the excision of some terms altogether. They chose not to amend the clause, and that seems to me to be another relevant consideration.
30. On behalf of Fenice, and in support of the argument that in this case the non-modifying provision of clause 1.3 was of no effect, Mr Webb relied on the decision of the Court of Appeal in English Industrial Estates Corporation v George Wimpey & Co Limited [1973] 1 Lloyd's Rep 118. There, the judge had found, on the true construction of clause 16 of the then RIBA form, that the risk of insurance had not been passed to the employer by the contractor and would not do so until the premises had been handed over and accepted by the employer. The Court of Appeal rejected the contractor's appeal. There was an issue as to whether two paragraphs (C and D) in the bills could be looked at to interpret clause 16, notwithstanding a provision at clause 12 that nothing in the bills could override, modify or affect the contract terms. Lord Denning MR said that C and D could be looked at for the purposes of interpretation of clause 16; Stevenson LJ said that they could not; and Edmund Davies LJ said that they could be looked at, not for the purposes of interpretation but "in order to follow what exactly was going on". Lord Denning made plain that, even without C and D, he considered the judge to have been correct in his interpretation of clause 16.
31. Accordingly, English Estates is a long way from being authority for the proposition that, in some way, despite a non-modifying term, a provision in the bills (or, as here, the Employer's Requirements) can modify, let alone take precedence over, a term in the contract. First, unlike this case, there was no direct conflict in English Estates between the relevant provisions. The Court came to a view on the proper interpretation of clause 16, and the provisions in C and D, if relevant at all, were relevant simply to strengthen that interpretation of clause 16. Secondly, all the observations on this topic were obiter because, as I have indicated, the Court of Appeal did not need to look at clauses C and D in order to come to their view about clause 16. Thirdly, there was actually a majority (Edmund Davies LJ and Stevenson LJ) who said that paragraphs C and D could not be looked at for the purposes of contractual interpretation.
32. For the avoidance of doubt, I should also add that I respectfully agree with Stevenson LJ, who was the only member of the Court of Appeal who dealt expressly with the effect of clause 12, which was the non-modifying provision. He said:

"I confess with diffidence that I cannot go all the way with the Master of Rolls on either question. To apply the general principle that type should prevail over print seems to me to contradict the express provision of clause 12 that the reverse is to be true of this particular contract … In so far as they introduce further contractual obligations, as they do at paragraph 9, they may add obligations which are consistent with the obligations imposed by the conditions, but they do not affect them by overriding or modifying them or in any other way whatsoever. It follows from a literal interpretation of clause 12 that the Court must disregard – or even reverse – the ordinary and sensible rules of construction and that the first of the documents comprising the works Wimpeys offered in their tender of December 17th 1968 to carry out expressly prevents the Court from looking at the second of those documents to see what the first of them means."

In my view, that analysis applies equally to clause 1.3 here. In fact, it applies a fortiori because here, as I have found, section 15 of the Employer's Requirements conflicts with the contract clauses.

33. The other case referred to me was a decision of HHJ Edgar Fay QC, sitting as a Deputy High Court in Henry Boot Construction Limited v Central Lancashire New Town Development Corporation [1980] 15 BLR 1^[1]. In that case, an issue arose as to whether the work of the statutory undertakers (which was referred to in the general description of the works in clause 1 of the contract, but which was identified in the bills on the basis that the work would be performed by the statutory undertakers themselves, and not the contractor) was part of the contract works. Clause 12 was again relied on in support of the argument that the statutory undertakers' works were part of the contract works, on the grounds that clause 1 could not be modified by the bills, even though everyone recognised that the work would not be done by the contractor but by the statutory undertakers themselves.
34. Judge Fay had no difficulty in rejecting that argument. One of the reasons for his decision was that the non–modifying provision (clause 12) had been amended since English Estates to allow the bills to be looked at for certain purposes, including to check the quality and quantity of the work included in the contract sum. Thus Judge Fay concluded:

'…I think that the whole phrase "quality and quantity of the work included in the contract sum" is wide enough for me to look at the bills and find that the relevant work, although formally included, is pragmatically excluded. Adopting this line of approach, I take the pragmatic view that the relevant work is work not forming part of the contract and accordingly does fall within paragraph (h).'

35. Again, therefore, I conclude that Henry Boot does not come close to providing authority for the proposition that, in the present case, clause 1.3 should be ignored such as to permit the conflict between clause 4.10 and section 15 to be resolved in favour of Fenice.
36. Shorn of elaboration, Mr Webb's argument of principle came down to this: in accordance with Lord Hoffmann's statements of principle in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896, and more recently Chartbook Ltd & Anr v Persimmon Homes Ltd [2009] UKHL 38, the Court had to construe the contract in accordance with the objective intention of the parties, so the homemade provision at section 15 of the Employer's Requirements should trump all the printed contract terms, including, if necessary, clause 1.3 itself. Of course, it is right that the contract has to be construed by reference to the parties' objective intention, but to accept the submission that section 15 trumps everything else would be to find that an express hierarchy/precedence clause should simply be disapplied. No principle or authority has been identified in support of such a submission. Notwithstanding the recent emphasis in the higher Courts on the importance of looking at all of the contract documents to work out objective intention, I consider that Fenice's attempt to ignore the agreed contract term applicable in cases of conflict, simply because it is inconvenient to their commercial purposes, is without foundation.
37. For those reasons, therefore, I am in no doubt that:

(a) There was a conflict between clauses 4.9 and 4.10 of the contract on the one hand, and section 15 of the Employer's Requirements on the other;

(b) The conflict was fundamental and irreconcilable. The payment provisions must be provided by either one or other of these sets of provisions: they cannot be taken together;

(c) Clause 1.3 made plain that, in the event of just such a conflict, it had to be resolved in favour of the contract terms themselves (in this case clauses 4.9 and 4.10).

38. Thus, the applicable payment régime was that successfully canvassed by JFC in the adjudication. In accordance with clause 4.10, the final date for payment was 27th August, which meant that the withholding notice had to be issued no later than 22nd August. It was not issued until 25th August, which was too late for it to be effective. On that basis, JFC are prima facie entitled to the sum awarded by the adjudicator, less the amount already paid by Fenice, in the net sum of £165,132.13 plus interest.

DOES SECTION 15 COMPLY WITH THE ACT?

39. In the light of my conclusion that section 15 of the Employer's Requirements is ultimately irrelevant to the parties' rights and liabilities in respect of interim payments, it is unnecessary for me to consider in detail JFC's secondary submission, which was to the effect that, if section 15 applied, the contractual payment scheme did not comply with Part II of the Scheme.
40. I should, however, say that, in my judgment, if I was wrong and section 15 was the relevant payment mechanism, then it seems to me that its provisions would not comply with the Scheme. That is because, as noted above, the parties would not have agreed the intervals at which interim payments became due. Those intervals would all depend on when the quantity surveyor got round to valuing each of the applications and making his recommendations. Such an uncertain procedure is contrary to paragraph 1B of Part II of the Scheme.
41. In those circumstances, the relevant dates would either revert to those in clause 4.10, or would be implied by reference to paragraphs 4 to 10 of Part II of the Scheme. That provides for payment being due seven days after the application, with a final date for payment 17 days after it became due. A withholding notice has to be issued seven days before the final date for payment.
42. Translated to these facts, it would mean that the sum sought in Application 19 became due on 13th August, seven days after its provision, with a final date for payment of 30th August, 17 days later. The withholding notice was due no later than 23rd August. Accordingly, even on this analysis, Fenice's withholding notice was out of time.
43. Mr Webb's argument on this point was to say that, whilst one date in section 15 was not fixed, namely the date on which the interim certificate was to be issued, the Court could get round the omission by implying a reasonable term. He also said that, in circumstances where only one date was missing, it would not be appropriate to imply the whole of the Scheme into the contract. The difficulty with those submissions, so it seems to me, is that they ignore the critical importance of promptness and certainty required by the Act. Arguments about what might be, in any given circumstances, a reasonable time for a certificate to be issued were precisely what the Act was designed to avoid. It seems to me, therefore, that the Scheme set out in section 15 would not comply with the Act for that reason.

ARTICLE 3

44. Article 3 of the contract identified Sawyer & Fisher as the employer's agent. It went on:

"Save to the extent that the employer may otherwise specify by written notice to the contractor, the employer's agent shall have full authority to receive and issue applications, consents, instructions, notices, requests or statements and otherwise to act for the employer under any of the conditions."

Mr Webb's final argument was to the effect that section 15 comprised a notice under Article 3 and that clause 4.10 did not apply on the facts of this case because Application 19 was sent by JFC to the quantity surveyor and not to the employer or his agent. In this way, he said that the section 15 regime must apply by default.

45. It seems to me that that argument, which was also rejected by the adjudicator, is hopeless. I agree with the adjudicator's conclusion and his reasoning on this point. Apart from anything else, a notice under Article 3 would need to postdate the contract itself, and would need to be in clear and unequivocal terms, because in practice in construction contracts, the employer's agent is treated by everyone as the employer himself. Section 15 was not a notice given after the contract had been entered into, and it was certainly far from being a clear notice under Article 3. Moreover, it seems to me that it would lead to a result that is contrary to commonsense, because all the parties operated on the basis that the quantity surveyor (who in this case was the same legal entity as the agent anyway) would evaluate the application and make a recommendation, which sum would then be included in the written notice of payment provided for by clause 4.10.

CONCLUSIONS AND ORDERS MADE

46. For the reasons set out above, I have concluded, as the adjudicator did before me, that the withholding notice of 25th August 2009 was out of time and that there can be no defence to the claim of £165,132.13 together with interest. The interest claim is based on the daily rate awarded by the Adjudicator and is therefore capable of being agreed between the parties.
47. It is in this context, however, that I revert to the question of Fenice's failure to pay up in accordance with the Adjudicator's original decision. It is not uncommon for a party in Fenice's position, whose defence to the claim in the adjudication is based on a point of construction or a point of law, to refuse to pay the sum awarded by the adjudicator and commence CPR Part 8 proceedings, confident in the knowledge that the TCC will endeavour to get the matter on as quickly as possible. The TCC indeed will always try to do just that and, subject to the lists, will always give directions so as to resolve finally any Part 8 proceedings as quickly as it can. The question is, of course, what happens to the money in the interim.
48. I am in no doubt that an adjudicator's decision is binding on the parties and, save in exceptional circumstances, it must be complied with, no matter how quick or slow the Part 8 procedure to challenge that decision. A losing party who makes a challenge to the decision by using the CPR Part 8 procedure can do so, but in the ordinary case he must, in the meantime, pay the sum found to be due. Contrary to Mr Webb's submission, there is nothing in the latter part of the judgment of Akenhead J in HS Works Ltd v Enterprise Managed Services Ltd [2009] EWHC 729 (TCC) which could or should be read as suggesting anything different.
49. If a party does not comply with the adjudicator's decision, then, whatever the result of the subsequent CPR Part 8 proceedings, that party should expect to be penalised for its default by way of both interest and costs. As to interest, the Court may well impose a punitive rate of interest in accordance with the Late Payment of Commercial Debts (Interest) Act 1998 and the decision of the Court of Appeal in Ruttle Plant Hire Ltd v Secretary of State for Environment Food & Rural Affairs (No 3) [2009] EWCA Civ 97. Further or alternatively, orders for costs, including costs on the indemnity basis, may be appropriate to make up for the failure to comply with the agreed contractual régime.
50. In the present case, I order that Fenice pay JFC £165,132.13 within seven days. In addition, interest must also be paid within seven days, but, as I have made plain, that will be interest calculated in accordance with the rate awarded by the adjudicator, there being no claim under the 1998 Late Payment Act. I consider it would be wrong and unfair for such a claim to be introduced without notice at the last minute. As to costs, I order that Fenice pay the costs of the Part 8 proceedings on the standard basis (their point of law being bona fide, even if wrong). But I order that Fenice must pay the (lesser) costs of the Part 7 proceedings on an indemnity basis, because they should have paid the money to JFC in accordance with the adjudicator's decision, regardless of the eventual outcome of the Part 7 proceedings (see Gray v Essential Box [2006] EWHC 2520 (TCC).

Note 1   This reference gives me an opportunity to pay tribute to Edgar Fay, who died last month aged 100. He was one of a group of judges in the 1970s and early 1980s, with Sir William Stabb QC and HHJ Lewis Hawser QC, who did so much to build up the reputation of the old Official Referees’ Court, the predecessor of the TCC.    [Back]