The topical issue of payment schedules was reviewed for a second time this year in the recent case of Bouyges (UK) Ltd v Febrey Structures Ltd [2016] EWHC 1333 TCC.
The parties to this case had amended the payment terms at Clause 21 of the GC/Works Subcontract to specify particular dates when the Febrey was to submit its interim applications for payment, by reference to a payment schedule at Appendix 8 to the Subcontract. Appendix 8 to the Subcontract was actually delivery route information and the payment schedule was found in Appendix 10. The Subcontract also contained at Clause 21 provisions specifying a payment process which would apply in the event that no schedule was contained at Appendix 8.
Works started on site in March 2015 and Febrey applied for monthly payments in accordance with Appendix 10. This process continued until October 2015 when a dispute arose between Bouyges and Febrey regarding Febrey's interim application for payment in the sum of £144,582.
Following receipt of Febrey's interim application, Bouyges served a payer notice on 23 November 2015 certifying a balance due to Febrey of -£2041. No pay less notice was issued.
Febrey argued the payer notice was late and that it should have been served on 20 November 2015. They claimed payment of the sums specified in their October 2015 application. No payment was forthcoming from Bouyges and the dispute was referred by Febrey to adjudication. The adjudicator found in Febrey's favour and Febrey sought to enforce the adjudicator's decision in the Technology and Construction Court ("TCC").
In defence of the claim before the TCC, Bouyges argued that the October dates within the payment schedule were not Construction Act compliant. They also argued that the notice was a valid notice which was served on time because either the default provisions of Clause 21 applied or the non-compliant clauses of the payment schedule ought to be replaced by the Scheme for Construction Contracts 1998.
Appendix 10 of the Subcontract specified the following payment dates as being applicable to the October 2015 application:
- the due date for payment was 16 November 2013;
- the final date for payment of 60% of the application was 23 November 2015;
- the payer notice was due for the whole application on 23 November 2015; and
- the pay less notice for the whole application was to be issued on 20 November 2015.
Following a detailed review of the Subcontract, including Appendix 10 and the factual circumstances surrounding the claim, the court concluded that Febrey was entitled to the sums applied for. They concluded that something had gone wrong with the drafting of Clause 21 and the parties had intended to refer to Appendix 10, rather than Appendix 8. In construing Appendix 10, the court agreed that it did not comply with the Construction Act as the payment notice was to be issued more than five days after the due date and the pay less notice was wrong stated as being issued before the payer notice date.
The court looked at what was agreed in Appendix 10 and noted that a clear pattern for the monthly payment regime had been adopted every month except October 2015. The court found no good reason for the variation to the agreed pattern and concluded it was an obvious error in Appendix 10. The court held there was also no room for implying a term when that would be contrary to an express term of the contract which the court had construed.
The court's decision meant that the Contractor should have served its payer notice on 20 November 2015 to be effective. As Bouyges served its notice on 23 November 2015 this was issued too late. Febrey was therefore entitled to be paid the sums applied for.
Practical consequences of this decision
Ensure when preparing payment schedules to be incorporated within contracts that the correct dates are included for each and every payment cycle. As the Bouyges case demonstrates, the court will take a pragmatic approach to interpreting the payment schedule, especially where they consider there to be a "clear and obvious error" in the dates contained therein. This could prove costly for the paying party where notices are deemed not to have served timeously.
By way of a reminder, following the earlier payment schedule case of Grove Development v Balfour Beatty, when preparing a payment schedule for inclusion in a building contract, be careful to ensure that this provides for overruns in that schedule. Delays to works are not uncommon and if the schedule does not allow for interim payment, this can cause cashflow difficulties for contracting parties.
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