The importance of getting notices correct

We commonly see disputes arising as a result of poorly drafted or late notices being issued. We therefore often have to stress the importance of getting notices correct, especially when it comes to receiving or making payments. The recent case of RGB Plastering Ltd v Tawe Drylining and Plastering Ltd [2020] EWHC 3028 (TCC) provides us with yet another reminder of how important it is to issue notices not only on time, but in clear terms and in accordance with the contract.

Background

RGB engaged Tawe as a drylining subcontractor for a project located in Portsmouth. The subcontract set out the procedure for interim payments which included a payment schedule detailing the dates by which Tawe was to submit its applications for payments as well as setting out the corresponding valuation or due dates.

In submitting these applications, Tawe was required under the contract to specify the amount of payment claimed to be due, how that amount was calculated and to what the amount related to. The payment schedule to the subcontract further set out that the payment applications were to be sent electronically to a specific RGB email address, were to be valued up to a relevant due date and would not be considered if they were received after the relevant application date.

Tawe proceeded to issue an application on 7 May for works valued up to 30 April 2019. This application was not issued to the appropriate RGB email address, nor did it correspond to any relevant date set out in the payment schedule.

RGB did not pay the sum claimed and instead put in its own valuation of Tawe’s works following termination of the subcontract. This resulted in a dispute as to whether Tawe’s interim payment application was valid.

The judgment

In a judgment handed down on 13 November 2020, the judge reiterated the established case of Jawaby Property Investments Ltd v Interiors Group Ltd and Black [2016] EWHC 577 (TCC), emphasising “that a document can be an application only if it is clear in substance, form and intent that it was intended to be an application for a particular month so that the recipient could properly appreciate the consequences of the document and the need to respond.”

The judge found that the way in which the payment application had been completed by Tawe gave rise to questions about its compliance with the subcontract. The fact the application had been provided with supporting documents did not alone justify whether the application was compliant where there were other specified requirements, as are set out above.

The reference in the 7 May application to the works being valued as at 30 April 2019 added confusion as to whether the application was in fact part of the April or May payment cycle. This is because it failed to comply the requirements of the Payment Schedule in valuing the works up to the RGB subcontractor valuation date, i.e. up to 3 May if it was an April application, or 2 June if it was a May application.

The fact the payment application was made in accordance with RGB’s template and contained a breakdown of Tawe’s valuation made no difference of whether it met the requirements of the Payment Schedule.

The judge accordingly found that the 7 May application was not only late, it did not value the works to either of the appropriate contractual dates. Further the application was not sent to the email address specified in the payment Schedule. Tawe’s payment application therefore failed to comply with the requirements of the subcontract and consequently lacked clarity and was ambiguous leading to the parties being unable to deal with the application appropriately under the terms of the subcontract. The judge found that the 7 May payment application was invalid, and Tawe was as a result unable to rely on its payment application.

Legislation and Standard Form Contracts

In considering the above judgment, it should be remembered that section 110 of the Housing Grants, Construction and Regeneration Act 1996 stipulates that construction contracts must provide an adequate mechanism for determining what payments become due under the contract and when, as well as a final date for payment. The parties are otherwise free to agree how much interim payments should be, or how regularly they need to be made.

JCT Design and Build Contract 2016 (D&B)

Clause 4.7 of an unamended D&B provides that interim payments shall be made by the Employer to the Contractor in accordance with the chosen option (i.e. stage payments, or periodic payments). The Contractor is required to make an application to the Employer stating the sum that the Contractor considers to be due at the due date and the basis on which that sum has been calculated.

The monthly due dates for Interim Payments by the Employer in a D&B are 7 days after the relevant Interim Valuation Date (i.e. the date specified in the Contract Particulars) or, if received later, 7 days after the date of receipt by the Employer.

After the Contractor has made its application, the Employer should issue a Payment Notice no later than 5 days after the due date certifying the amount to be paid. Otherwise the Employer may issue a Payless Notice (historically referred to / known as a Withholding Notice) not later than 5 days before the final date for payment stating that the Employer intends to pay less than the sum stated as due in a Payment Notice of Interim Payment Application.

In the event the Interim Payment Application is issued correctly, and should the Employer fail to issue a Payment or Payless Notice, the Employer shall pay the sum stated as due in the Contractor’s Interim Payment Application (often referred to as a ‘notified sum’).

NEC (ECC) 4

Likewise, NEC contracts provide a mechanism for interim payments to be made to the Contractor. The process for making interim payments is set out in Section 5 of the core clauses.

The assessment interval stated in the Contract Data sets out how often interim payments are to be assessed. The Contractor is required to make an application for payment to the Project Manager before each assessment date, stating the amount it considers to be due and the details of how that sum has been calculated.

The Project Manager then assess the amount due to the Contractor at each assessment date. The amount due to the Contractor is generally the price for the work completed to date, plus any other amounts to be paid to the Contractor, less amounts which are to be paid by the Contractor or retained by the Client.

If the Contractor does not apply for payment before the assessment date, the amount due at the assessment date is deemed to be the lesser of the amount the Project Manager assess as due at the assessment date and the amount due at the previous assessment date. This will likely result in a ‘zero change’ and will mean the Contractor will not get paid.

In either case, failure to comply with the requirements set out in the Standard Forms may invalidate the Interim Payment Application, prevent payment being claimed by the Contractor and consequently lead to a dispute between the parties. Getting notices correct in the first instance will avoid disputes from arising or will at least help in narrowing the issues in dispute and will assist in minimising potential legal costs.

Contact a solicitor

If you require any advice regarding a construction contract or are currently involved in a dispute and need assistance please do not hesitate to contact Peter McHugh or Mark Scotney in our Construction Team.