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

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

		Royal Courts of Justice Strand, London, WC2A 2LL
		10/06/2016

The Deputy High Court Judge:

1. There were two sets of proceedings listed for hearing before the Court. The first was Febrey Structures Limited's application for summary judgment in respect of the enforcement of a decision dated 10^th February 2016 by an Adjudicator (Claim No: HT-2016-000054). The second was proceedings for declarations brought by Bouygues (UK) Limited as to the interpretation of the contract between Bouygues (UK) Limited and Febrey Structures Limited (Claim No. HT-2016-000052)
2. This case is an illustration of the practice of parties seeking to upset an Adjudicator's Decision by way of the swift final determination of the dispute. In Caledonian Modular Limited v. Mar City Developments Limited [2015] EWHC 1855 (TCC) at paragraph 12, Coulson J said:

"If the issue is a short and self-contained point, which requires no oral evidence or any other elaboration than that which is capable of being provided during a relatively short interlocutory hearing, then the defendant may be entitled to have the point decided by way of a claim for a declaration."

That is the approach agreed by the parties to be applicable in these proceedings.

3. On 28^th April 2016, Bouygues (UK) Limited stated that it would not be pursuing any of the issues that it had raised with respect to the enforcement proceedings. The parties agreed that the focus of the hearing on 29^th April 2016 would be the claim brought by Bouygues (UK) Limited for declarations. Henceforth, therefore, I refer to Bouygues (UK) Limited as the Claimant and to Febrey Structures Limited as the Defendant, as was done by both Counsel during the course of the argument.
4. The claim arises out of a construction contract dated 28^th May 2015, whereby the Claimant sub-contracted to the Defendant works to construct an in situ concrete frame and structural topping for a new building at the University of Bath for a sum of £626,315.79. The Claimant and the Defendant entered into the Sub-Contract as follows (see paragraph 3 of the Amended Defence and Counterclaim):

(i) Following negotiations between the parties, the Claimant provided the documentation to the Defendant under cover of a letter dated 18^th March 2015;

(ii) The Defendant then signed the documentation and returned it to the Claimant;

(iii) The Defendant started work on site on or about 22^nd or 23^rd March 2015;

(iv) Under cover of a letter dated 28^th May 2015, the Claimant returned a countersigned Sub-Contract.

5. The Sub-Contract Order is in the Bundle at 83-260. The Sub-Contract Order incorporates the terms of the GC/Works Sub-Contract which is at 261-317 of the Bundle, although as far as this claim is concerned, the key terms are the subject of deletion and full replacement by way of amendments.
6. The dispute between the parties relates to the payment terms of the Sub-Contract with respect to the Defendant's October 2015 payment application. In particular, the dispute centres on whether, under the Sub-Contract, the Claimant was entitled to serve a Payment Notice or Pay Less Notice with respect to the Defendant's October 2015 payment application on 23^rd November 2015 (as the Claimant contends) or whether the Claimant was required to serve any such notice prior to that date (as the Defendant contends). It is common ground that the Notice was not served until 23^rd November 2015.
7. The key parts of the Contract as far as this claim is concerned are:

(i) Clause 21 regarding payment dates and, in particular, the amended Clauses 21.1 and 21.2; and

(ii) Appendix 10 to the Contract which sets out a schedule of agreed payment dates.

8. Clause 21 of the Sub-Contract Conditions, as amended by the Schedule of Amendments, includes the following:

"21.1.1 The Sub-Contractor shall submit to the Contractor applications for interim payment on those dates stated in any schedule of dates for application for interim payment that may be contained in Appendix 8.

21.1.2 Where no such schedule as referred to in clause 21.1.1 is contained in Appendix 8, the Sub-Contractor shall submit to the Contractor applications for interim payments in accordance with the following provisions…"

9. The Minutes of the Pre-Let Meeting (in fact entitled "Sub-Contract Pre-Let Meeting Minutes") included the following:

(i) At page 10 of 15:

"...6) Sub-Contract Payment Schedule – first app 28/4/15 by 4/3/15 to Edifice."

(ii) At page 13 of 15:

"(68) Honouring period for payment – due date for payment 60% within 21 days final by 35 days."

10. Appendix 8 of the Sub-Contract contained delivery route information.

Appendix 10

11. The copy of Appendix 10 in the Bundle is almost illegible. Counsel for the Defendant helpfully transcribed Appendix 10 and it is an Appendix to his Skeleton Argument. If this case is considered by the Court of Appeal, that transcription should be appended to this Judgment.
12. Appendix 10 was entitled:

"Sub-Contract Payment Schedule – 21 day payment terms for 60%; 35 days for 40%. University of Bath, 4 East South (new construction act compliant)."

The relevant entry is headed "Oct 2015" and reads as follows:

Application Date	Assessment Date	Due date for payment	Payment notice date	Pay less notice date	Final date for payment
23 Oct 2015	2 Nov 2015	16 Nov 2015	23 Nov 2015	20 Nov 2015	23 Nov 2015
			40% balance of payment	4 Dec 2015	7 Dec 2015

13. Having started work on site on or about 22^nd or 23^rd March 2015 (Defence and Counterclaim paragraph 3.3) the Defendant submitted its first payment application on 23^rd March 2015. Thereafter, the Defendant continued to submit its monthly payment applications in accordance with Appendix 10 and there were no material disputes until November 2015 when a dispute arose with respect to the payment application for October 2015.
14. The Defendant submitted its payment application for October 2015 on 23^rd October 2015 as set out in Appendix 10. The sum claimed in the October 2015 payment application was £144,582.06.
15. As appears from Appendix 10, for the October 2015 application:

(i) The due date for payment was 16^th November 2015;

(ii) The final date for payment for the 60% was 23^rd November 2015, 21 days after the Main Contractor Assessment Date;

(iii) The date for the Claimant to serve its Payment Notice for the whole application was 23rd November 2015;

(iv) The date for the Claimant to serve its Pay Less Notice for the initial 60% of the application was 20th November 2015.

The Defendant argues that the date for the Payment Notice was an obvious error and on an objective construction of the Sub-Contract, that date should be read as 20^th November 2015.

16. The Claimant did not serve any notice (whether described as a Payment Notice or a Pay Less Notice) on or before 20 November 2015. Instead, the Claimant served a Payment Notice on 23^rd November 2015.
17. In that Payment Notice, the Claimant valued the Defendant's entitlement as minus £2,041.27.
18. The Defendant considered that the Claimant had failed to comply with the terms of the Sub-Contract, such that the Defendant was entitled to payment of its October 2015 application notice, mainly:

(i) 60% by 23^rd November 2015; and

(ii) 40% by 7^th December 2015.

19. The Claimant failed to pay those sums, relying on its Payment Notice dated 23^rd November 2015. So, the Defendant commenced adjudication proceedings by a Notice of Adjudication served on 2^nd January 2016. It did so on the basis that the date for the Payment Notice in Appendix 10 did not comply with the Housing Grants, Construction and Regeneration Act 1996 because the deadline was more than five days after the due date. Thus, it was said by the Defendant that whilst the Claimant had served its Notice in accordance with the Schedule, it was out of time under the 1996 Act.
20. The Claimant agreed that the Payment Notice date in Appendix 10 was not compliant with the Act but argued inter alia:

(i) The dates in Clause 21 (being compliant with the Act) apply to the application; or

(ii) If Appendix 10 applied, the Pay Less Notice deadline and final date for payment both also had to be replaced by equivalent scheme dates to render the Contract fully compliant.

21. Thus, on either basis, its Notice of 23^rd November 2015 was in time.
22. The approach adopted by the Adjudicator did not find favour with either party. In any event, I consider the issues afresh.
23. In these Part 8 proceedings, the Claimant seeks declarations:

(i) as to the date for Pay Less Notices to be served against the Defendant's October application; and

(ii) that its Notice of 23^rd February 2015 was a valid Pay Less Notice.

Those declarations give rise to two central issues, namely:

(a) the applicability of Appendix 10; and

(b) the construction of Appendix 10.

There is a further issue which arises if the Claimant's Notice of 23^rd November 2015 was served in time, namely whether it was, in form, a valid Pay Less Notice. In addition, the Defendant claims rectification at paragraph 9 of the Defence. The parties agreed that the rectification arguments would not be heard on 29^th April 2016 although there is an attempt at paragraphs 89-92 of the Claimant's Skeleton Argument to deal with the claim through some form of pre-emptive strike. However, in the light of the parties' agreement mentioned, I have not considered any issues raised by the rectification plea.

24. In respect of the interpretation of the Contract, the Claimant's broad position is that:

(i) Clause 21 should be preferred because it is compliant with the Act: the consequence is that the Claimant's Notice was a valid Pay Less Notice, at least on timing; but

(ii) if Appendix 10 applies in place of Clause 21, it must be adjusted to render it compliant with the 1996 Act. Once this is done, the deadline for the Pay Less Notice is pushed back to 3^rd December 2015, or such a date as to render the Claimant's Notice timeous.

Clause 21

25. The Claimant's argument is simply expressed: where there are two conflicting provisions of contract, the Court should prefer the one which does not conflict with and be rendered null by a statute : see the Interpretation of Contracts, Lewison, 6^th Edition 2015 at paragraph 7.16. Appendix 10 conflicts with the 1996 Act, whereas Clause 21 does not do so. Therefore, the Claimant says, Clause 21 should be preferred.
26. That argument puts a slight gloss on the principle expressed in Lewison, which is:

"Where two interpretations of an agreement are equally plausible, upon one of which the instrument is valid, and upon the other of which it is invalid, the Court should lean towards that interpretation which validates the instrument."

That is based on the Latin maxim verba ita sunt intelligenda ut res magis valeat quam pereat, in respect of which one suggested translation is "validate if possible" : Rayfield v Hands (1960) Ch 1 at 4 and Tindall Cobham 1 Limited v Adda Hotels [2014] EWCA Civ 1215."

The reposte to that argument is that the alternative construction, namely Appendix 10, does not render the instrument invalid unless, upon its true construction, Clause 10 is rendered ineffective.

27. The task is to interpret the language of the Contract. The modern approach to the interpretation of contract begins with the speech of Lord Hoffmann in Investors Compensation Scheme v. West Bromwich Building Society [1998] 1WLR 896:

"(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person, having all the background knowledge, which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) … subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in action for rectification…

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words of syntax (see Mannai Investment Co Limited v. Eagle Star Life Assurance Co Limited).

(5) The "rule" that words should be given their "natural and ordinary meaning" reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require Judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera SA v. Salen Rederierna (AB) The Antaios: "If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense."

28. In Chartbrook Limited v. Persimmon Homes Limited [2009] 1 AC 1001, Lord Hoffman (with whom Lords Hope and Walker agreed) confirmed (paragraph 14) that the principles of construction were as set out in the ICS case and went on to say:

"14. The House emphasised that we do not easily accept that people have made linguistic mistakes, particularly in formal documents… but said that in some cases the context and background drove a Court to the conclusion that "something must have gone wrong with language". In such a case, the law did not require a Court to attribute to the parties an intention which a reasonable person would not have understood them to have had."

"15. It clearly requires a strong case to persuade the Court that something must have gone wrong with the language…"

"25. … there is not, so to speak, a limit to the amount of red ink or verbal rearrangement or correction which the Court is allowed. All that is required is that it should be clear that something has gone wrong with the language and that it should be clear what a reasonable person would have understood the parties to have meant…"

29. In Rainy Sky SA v. Kookmin Bank [2011] 1 WLR 2900, Lord Clarke said at paragraphs 28 and 30:

"28. … the resolution of an issue of interpretation in a case like the present was an iterative process involving checking each of the rival meanings against other provisions of the document and investigating its commercial consequences;

30. … where a term in a contract is open to more than one interpretation, it is generally appropriate to adopt the interpretation which is most consistent with business common sense."

30. In Arnold v. Britton [2015] UKSC 36, at paragraph 19, Lord Neuberger said "commercial common sense is not to be invoked retrospectively" and "commercial sense is only relevant to the extent to how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties" as at the date the contract was made and that judicial observations such as those flowing from Lord Diplock in The Antaios should be read and applied with that important point in mind. Lord Neuberger also emphasised, at paragraph 20, that "the purpose of interpretation is to identify what the parties have agreed, not what the Court thinks that they should have agreed". Lord Neuberger warned at paragraph 20 against re-writing a contract "in an attempt to assist an unwise party or to penalise an astute party".
31. It is entirely accurate to point out, as does Mr Robb for the Defendant, that the Claimant does not argue that Appendix 10 is inapplicable because it is not properly referenced in Clause 21.1.1 whether because of the reference to "Appendix 8" or otherwise. The only issue raised by the Claimant on this part of the case is whether the dates in Appendix 10 are inconsistent with the Act and, how that is to be addressed.
32. In considering this issue of interpretation, the following are important:

(i) Appendix 8 is a delivery route and has nothing to do with payment;

(ii) Appendix 10 is a Payment Schedule which the parties incorporated into the Sub-Contract as a named document in Appendix 1 to the Sub-Contract Order. It is also included in the List of Sub-Contract Documents;

(iii) The Pre-Let Meeting Minutes at page 10 of 15 specifically refer to the "Sub-Contract Payment Schedule";

(iv) The Pre-Let Meeting Minutes at page 13 of 15 specifically refer to a payment split of 60% of the payment being made within 21 days and the balance being paid within 35 days;

(v) That payment split is reflected in Appendix 10 but not in Clause 21.

33. In my judgment, it is plain that something went wrong with the language of Clause 21.1.1 in its reference to Appendix 8. Equally, it is clear from the surrounding documents which I have set out above that the parties intended to refer to Appendix 10. I, therefore, conclude that as a matter of construction, the reference to Appendix 8 in Clause 21.1 should be construed as a reference to Appendix 10.

Appendix 10

34. Having found that Appendix 10 is applicable, the Schedule does not comply with the 1996 Act in two material respects:

(1) The Payment Notice date is more than 5 days after the due date (Section 110A(1)(a));

(2) The Pay Less Notice deadline is before the Payment Notice deadline (Section 111(5)(b).

35. The Claimant identifies the key question as being "what changes should be made to render the contract compliant with the 1996 Act".
36. Section 110A(5) of the 1996 Act, provides that where the payment provisions are not compliant, the relevant provisions are replaced by the equivalent provisions of the Scheme. That is not a wholesale replacement: it occurs to the extent only that the Contract does not comply with the Act: see Grove Developments Limited v. Balfour Beatty Regional Construction Limited [2016] EWHC 168 TCC, paragraphs 28-29.
37. The consequence of changing the Payment Notice date to 5 days, in line with the Scheme is the following:

(1) Payment Notice - 21^st November 2015;

(2) Pay Less Notice - 20^th November 2015;

(3) Final Date for Payment - 23^rd November 2015.

38. But that creates a further issue because it is not permissible for the deadline for a Pay Less Notice to be prior to the deadline for a Payment Notice (see Section 111(5)(b) of The Housing Grants Act and Manor Asset Limited v. Demolition Services [2016] EWHC 222 (TCC) at paragraphs 62 and 63).
39. Moreover, replacing the Pay Less Notice deadline with the Scheme equivalent makes the situation more difficult because it results in a revised deadline of 16^th November 2015 (being 7 days before the Final Date for Payment) which is yet further in advance of the Payment Notice.
40. Thus, suggests the Claimant, the proper resolution is to change both the Pay Less Notice deadline and the Final Date for Payment in line with the Scheme. That course renders the Contract compliant with the 1996 Act and produces the following outcome:

(i) Payment Notice – 21^st November 2015;

(ii) Pay Less Notice – 26^th November 2015;

(iii) Final Date for Payment – 3^rd December 2015.

41. Alternatively, the Claimant relies upon the approach taken by Edwards-Stuart J in Manor Asset Limited v. Demolition Services Limited at paragraph 71 where, even after intervention of the scheme, the date for a Pay Less Notice was before the date for a Payment Notice. He decided that the correct solution was to leave the Final Date for Payment as it was but to treat the "prescribed period" for the Pay Less Notice as "nil", ie. it can be served at any time up until the Final Date for Payment. In that case, the Judge said the following:

"The only way in which it can be made to work, whether by so construing the contract or implying a term, is to say that the prescribed period was to be nil… In my judgment, such an agreement is necessary and it is not inequitable: if DSL wanted prompt payment within 72 hours of its invoice, it could not reasonably object to a corresponding reduction in the prescribed period."

42. If the solution adopted in Manor Asset were applied, the Final Date for Payment remains the 23^rd November 2015 and the Pay Less Notice is the same date.
43. In either case, the Claimant's Notice of 23^rd November 2015 was in time.
44. In my judgment, the context for the construction of Appendix 10 is the dates agreed by the parties. The scheme for application, notice and payment can be seen from the dates for the March 2015 application which was the first application by the Defendant. In relation to March 2015, the sequence was as follows:

(i) The application is to be issued by the Defendant on 23^rd March 2015;

(ii) That application is to set out the Defendant's position as to the value of the works as at the Main Contractor Assessment Date, namely 2^nd April 2015;

(iii) The Due Date for Payment is 14 days from the Main Contractor Assessment date, namely 16^th April 2015;

(iv) The Claimant is to serve its Payment Notice by 21^st April 2015. Under Appendix 10 there is only date for the Payment Notice for each application for both the 60% and 40% elements of the payment;

(v) The Claimant is to serve its Pay Less Notice for the 60% also by 21^st April 2015;

(vi) The Final Date for Payment for the 60% is 23^rd April 2015;

(vii) The Claimant is to serve its Pay Less Notice for the remaining 40% by 5^th May 2015; and

(viii) The Final Date for Payment for the remaining 40% is 7^th May 2015.

45. As can be seen from the dates for the March 2015 application:

(i) The 21 day/35 day: 60/40 payment split agreed by the parties was with reference to the Main Contractor Assessment Date. So, in relation to the March 2015 application date:

(a) The Main Contractor Assessment Date is 2^nd April 2015;

(b) The Final Date for Payment for 60% was 23^rd April 2015 (ie. 21 days after 2^nd April 2015);

(c) The Final Date for Payment for 40% was 7^th May 2015 (ie. 35 days after 2^nd April 2015);

(ii) With respect to the 60% payment, the Claimant was to submit its Payment Notice and the Pay Less Notice on the same date. In consequence:

(a) the Payment Notice is within five days of the Due Date; and

(b) the Pay Less Notice for the 60% is issued two or three days prior to the Final Date for Payment for the 60%.

46. That is the pattern with respect to each monthly payment application other than for October 2015 and March 2016. Even with respect to those months, the Final Date for Payment for the 60% is 21 days after the Main Contractor Assessment Date as specifically agreed by the parties and as set out in the Pre-Let Meeting Minutes.
47. I can identify no good reason why the parties would intend the consistent pattern of the Payment Notice and Pay Less Notice for the 60% of the application being served on the same date within five days of the Due Date and two or three days before the Final Date for Payment or the 60% being varied for October 2015 (or for March 2016).
48. Thus, there is an obvious error in Appendix 10 with respect to the October 2015 obligation in that the Payment Notice Date was given as 23^rd November 2015 not 20^th November 2015. After all, for all other monthly applications (other than February 2015 and March 2016), the Payment Notice Date is the same as the Pay Less Notice Date for the 60% and within five days of the Due Date. The date for the Pay Less Notice Date for the 60% is 20^th November 2015. Further, for all monthly applications (other than March 2016), the Payment Notice Date is two to three days prior to the Final Date for Payment of the 60%. The Final Date for Payment for the 60% is 23^rd November 2015.
49. That construction respects the parties' agreement that the Final Date for Payment for the 60% is 21 days after the valuation date and is compliant with the Act.
50. In my judgment, therefore, it is possible to identify a clear and obvious error in Appendix 10. The reference to "23 Nov 15" should be construed as "20 Nov 15".
51. Similarly, the Claimant's argument concerning the Final Date for Payment of the 60% should also be rejected because it fails to respect the parties' express agreement that the Final Date for Payment for the 60% would be within 21 days of the Due Date. That agreement is found in the Pre-Let Meeting Minutes which form part of the Sub-Contract and is reflected in the dates set out in Appendix 10 for all monthly applications.
52. The Notice, having been served on 23^rd November 2015 should have been served on 20^th November 2015 to be effective.
53. This is not a case in which I can follow the guidance given in Manor Asset v. Demolition Services (supra) because I am led by the Schedule of Dates within Appendix 10 to construe the contract in a particular way. Further, in the light of that construction, it is impermissible to imply a term because to do so would be contrary to what I have construed as the express provisions of the Contract.
54. The consequence is that no timeous Payment Notice or Pay Less Notice was served. The issue whether the form of the Notice was itself valid thus falls away.
55. The claim fails. Insofar as the Counterclaim seeks the payment of money arising out of the failure by the Claimant to serve a timeous Notice, it succeeds. I will hear Counsel on the form of order in the event that it cannot be agreed.