Payment Notice - is it Valid?

In the recent case of Henia Investments Inc v Beck Interiors Ltd [2015] EWHC 2433 (TCC), the claimant applied to the court for declaratory relief in respect of various disputes arising from a construction contract. This included the validity of a contractor’s payment notice.

Background

Henia Investments Inc (the employer) entered into an amended JCT Standard Building Contract with Beck Interiors Ltd (the contractor) for fitting out works to a property in Knightsbridge, London. The original contract sum was just under £4 million and a contracts administrator (CA) was appointed.

A dispute arose between the parties following the following the issuing of a payment notice and payless notice for the months of April and May and the employer sought a declaratory order confirming that the payment notice was invalid.

Decision

The court noted that recent legislation has led to complex payment provisions, such as those set out in the parties' contract.

The court highlighted the importance of knowing whether a document filed by a contractor was an interim application for payment because the application becomes the contractor's interim (or default) payment notice if the CA fails to issue an interim certificate in time. This meant an application for payment must be free from ambiguity and must be "in substance, form and intent an Interim Application".

The court then turned to consider the language of the contractor's interim application for payment and held:

  • It expressly referred to application 18, which was the April payment due date. There was nothing expressly referring to the May date.
  • Work was valued to 30 April 2015, which suggested that the contractor either anticipated doing no work in May, or was foregoing any interim entitlement to any work it did carry out in May. This was unlikely.
  • The April date had passed, but the contractor did not acknowledge this or state that the application was intended to be the May application.
  • The application was not "free from substantial ambiguity".

In providing the Employer with the declaratory relief, the Court clarified the importance of knowing if a document is an interim application for payment. The reason behind this is that serious consequences flow from such a document so it must be clear and unambiguous so that the parties know what to do about it and when.

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A party seeking to issue an application for interim payment needs to be sure that the wording is clear and concise to avoid any misunderstanding as to its effect.

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