Most construction contracts permit or require payees to notify the payer of the sums it considers will be due to it on the payment due date and the basis on which that sum is calculated. In some circumstances, an interim application for payment (issued in accordance with the contract) may become a default payment notice, by virtue of Section 110(B) of the Housing Grants Construction and Regeneration Act 1996 (as amended).
However, what happens if the payee's interim application for payment is issued early? Does this matter? This is an issue which has been considered by the Courts on a number of occasions, and not been looked upon favourably. Some examples include:
Leeds City Council v Waco UK Ltd
In Leeds City Council ("LCC") v Waco UK Ltd ("Waco"), all of Waco's interim applications had been certified by LCC's agent and, in turn, paid by LCC. This applied even where Waco had applied for payment two or three business days after the contractual valuation date. It also applied, on one occasion, where Waco sought payment earlier than the contractual valuation date. However, when Waco issued another application for payment early, LCC's agent did not certify any sum due or issue a pay less notice. Waco then argued that its application became the default payment notice. It was ultimately decided by the court during enforcement proceedings that LCC accepting one application early was not enough to equate to an implied representation that it would waive a similar irregularity in the future: "one swallow does not make a summer".
Caledonian Modular Ltd v Mar City Developments Ltd
On 13 February 2015 Caledonian Modular Limited ("Caledonian") issued to Mar City Developments Limited ("Mar City") a copy of its application number 15 prefixed with the words "Final Account". Caledonian subsequently claimed that its 13 February 2015 submission had been its application for payment 16, and that in absence of a payment or pay less notice, its application became the default payment notice.
The court held that the 13 February 2015 document was not a valid application for payment. In reaching its conclusion, the court identified that Caledonian's fifteen earlier applications were all made at the same time and followed the same format, which differed from the format of the submission on 13 February 2015. In concluding that the application was invalid as it had been served early, the court commented that had it found in favour of Caledonian it would have encouraged contractors to make a fresh claim for payment every few days in the hope that an employer would "take his eye off the ball and fail to serve a valid payless notice".
Jawaby Property Investments Ltd v The Interiors Group Ltd
In Jawaby a "valuation" sent by a contractor to its employer was held to be an "initial assessment" only and did not amount to a valid interim application for payment. It was held that The Interior Group Limited's ("TIG") "initial assessment for Valuation 007" could not "objectively be construed as a statement by TIG of what it considered was due to it…". This was supported by the fact that the valuation only went up to 7th January, and not the 8th as was required in the contract and as had been adhered to in all other applications.
Key Take Away
These cases are just a few examples that confirm the robust approach taken by the courts as to the validity of 'early' payment applications. That robust approach is, of course, justifiable given the consequences that may follow if an employer fails to issue a valid payment or pay less notice.
If you are a payee, you should always ensure that your application is issued on time, that it is an application in "substance, form and intent" and that it is in clear and unambiguous terms.
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