Case Update - to amend or not to amend

In the recent case of Fenice Investments Inc v Jerram Falkus Construction Limited [2009] the TCC was asked to resolve the ambiguity created by amendments to the standard payment terms of a JCT Design & Build Contract (Revision 1) 2007. This case illustrates that while amendments to standard form contracts often seem attractive, unless they are well thought out and assiduously drafted, they can lead to costly disputes.

Dispute: A dispute arose in connection with Jerram Falkus Construction Limited's ("JFC") application for interim payment No.19. The dispute centred on whether Fenice Investments Inc ("Fenice") had issued a payment notice and/or a withholding notice within the required timescales, which in turn depended upon the proper construction of the contract.

A dispute arose in connection with Jerram Falkus Construction Limited's ("JFC") application for interim payment No.19. The dispute centred on whether Fenice Investments Inc ("Fenice") had issued a payment notice and/or a withholding notice within the required timescales, which in turn depended upon the proper construction of the contract.

The dispute was referred to adjudication and the Adjudicator agreed with JFC's interpretation of the JCT Contract. Fenice failed to pay the full sum due under the Adjudicator's award. Consequently, Fenice issued proceedings for declarations in respect of interpretation of the contract terms. On the following day, JFC issued their own claim and an application for summary judgment in respect of the sums found due by the Adjudicator.

Comment: The JCT Contract set out a procedure for payment. In addition to this, the Employer's Requirements also set out its own bespoke payment procedure. The issues that came before the TCC were whether the two could be reconciled and, if not, which one was to prevail?

The JCT Contract set out a procedure for payment. In addition to this, the Employer's Requirements also set out its own bespoke payment procedure. The issues that came before the TCC were whether the two could be reconciled and, if not, which one was to prevail?

Following a review of the relevant provisions, the Judge decided that there was a conflict between the two procedures, with Fenice's own procedure (as set out in the Employer's Requirements) being "wholly uncertain and entirely within the gift of either the employer or his quantity surveyor".

The Judge went so far as to say that, in the event that the Employer's Requirements had contained the relevant payment mechanism, it would not comply with the Scheme (the Scheme for Construction Contracts (England and Wales) Regulations 1998) because the parties would not have agreed the intervals at which interim payments became due. Those intervals would all depend on when the surveyor got around to valuing each of the applications and making his recommendations. Such an uncertain procedure is contrary to the Scheme.

The Judge then turned to clause 1.3 of the JCT Contract to resolve the conflict which states as follows:

The Judge stated that, in his view, Clause 1.3 is a clear hierarchy clause, designed expressly to deal with a conflict of this sort. Here it had the inevitable effect that, just as the Adjudicator found, the JCT Contract Conditions took precedence over the Employer's Requirements.

Costs: as Fenice were unsuccessful in their position, the TCC ordered that they pay the costs of the proceedings on a standard basis (their point of law being genuine, even if wrong). However, for the enforcement proceedings, the TCC held that these should be made on an indemnity basis, because Fenice should have paid the monies awarded to JFC in accordance with the Adjudicator's Decision. A losing party who makes a challenge to the decision can do so, but in the ordinary case he must, in he meantime, pay the sum found to be due.

Advice: this case is a stark lesson regarding amendments to standard form contracts. Such amendments can be, as this case demonstrates, highly risky without legal advice and assistance. Clarke Willmott has an experienced team of construction solicitors should you require advice in connection with any of the issues discussed in this article.

For further information in relation to our specialist construction services please contact Robin Gupta (Partner) or Coriander Davies (Solicitor) on 0845 209 1425 or coriander.davies@clarkewillmott.com.

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