Barrister Professor Rudi Klein warns of the consequences of failure to stick to your application dates.
In this column I have already written about the default notice procedure. This procedure (under section 110B of the amended Construction Act) enables you to claim as due the amount in your application in the absence of any notices from the other party.
Let’s say you applied for a progress payment on 1 August. Your paying party was supposed to issue you with a payment notice but failed to do so. Neither did he issue you with a pay less notice. The amount in your application (provided you have shown how it was calculated) now becomes the due amount and must be paid by the final date for payment.
But there is a little catch!
Section 110B also states that the application must be in accordance with the contract. What happens if your application is prior to or post the application dates in the contract?
Leeds City Council v Waco UK Ltd
The answers to these questions were given in the recent case of Leeds City Council and Waco UK Ltd. Waco had entered into a contract with the Council to design, manufacture and install factory-assembled classrooms at a Leeds primary school.
The contract – the JCT Design and Build Contract 2005 (as amended) – stated that: “Applications for Interim Payment [prior to Practical Completion] shall be made on the dates provided for in the Contract Particulars … Application for Interim Payment [after Practical Completion] shall … be made at intervals of two months … ” (emphasis added).
Prior to practical completion, applications were made on or around the specified monthly dates. But the client’s agent had authorised payments even if the applications were not submitted on the correct dates. This process carried on after practical completion although the agent did object to one application that was made two days early; nearly all the applications accepted by the agent had been made late.
On 22 September 2014, Waco submitted Application 21 which was for £484,759.50 plus VAT. The Council had not paid this amount and neither had it issued any payment notices. In February this year, an adjudicator ordered the Council to pay this amount. When the Council failed to pay, Waco applied to the court to enforce the adjudicator’s decision.
The court gave the Council leave to defend provided it paid the money – which it did. Subsequently the Council sought a declaration from the court that the adjudicator’s decision was wrong because the application was invalid.
The Council argued that all applications for payment had to be made on the contract dates. Application 21 should have been submitted on 28 September 2014 – not 22 September. Therefore Application 21 was not a valid application.
Waco placed a great deal of reliance on the fact that the Council’s agent had often accepted applications that were made late. Payment was subsequently made even though the application dates had not been adhered to. Therefore the Council had, in effect, waived the need for absolute compliance with the application dates.
It was accepted by the parties that the dates on which applications were to be made were the dates on which the work – which was the subject of the application – was to be valued.
The Court’s decision
The court found in favour of the Council. Mr Justice Edwards-Stuart said: “In my view an Application for Interim Payment under this contract is required to be made on the relevant date: that is to say that it must state the financial position as at that date. It has to include the total value of the work properly executed up to that date.”
The judge added that this precluded applications made prior to the contract dates. Therefore Application 21 was not a valid application and, therefore, the adjudicator’s decision could not stand. Waco had to pay back the amount already paid by the Council in accordance with the adjudicator’s decision plus interest. It remained open to Waco to seek a determination of its final account following which it may or may not become entitled to further payment.
The judge also referred to the regular acceptance by the employer’s agent of applications made (on average) three or four business days after the application dates. From this it could be implied that late applications would be valid (provided that they were not more than four business days after the relevant dates).
The decision in this case is extremely important. Take care to ensure that your applications are made on the agreed dates. If unsure about the dates always clarify the dates with the other party at the outset of the contract. If you fail to do this you could lose the benefit of an application becoming the due sum in the absence of any payment notices from the other party.