REUTERS | Toby Melville

An (e)stopped clock is right twice a day. Is your engineer’s conduct a ticking time bomb?

As the deluge of smash and grab adjudications continues to percolate through the construction industry, shrewd contractors are advancing more and more creative legal submissions as a way of reviving interim payment applications that have somewhere gone awry. Twice in the past year, the TCC has been addressed on the issue of whether a contractor can rely on an estoppel to resuscitate an interim payment application. In one of those cases, that estoppel was created solely out of the actions of the contract administrator.

Although the TCC has yet to fully articulate all of those situations in which the actions of the engineer or contract administrator are capable of giving rise to an estoppel, construction professionals would be wise to exercise a degree of caution and be wary of inadvertently bestowing such rights upon the contractor, much to the detriment of the employer.

Leeds City Council v Waco UK Ltd

In Leeds City Council v Waco UK Ltd, Edwards-Stuart J had to determine whether a common failure to adhere to the payment timetable outlined in the contract was capable of giving rise to an estoppel.

Leeds City Council had engaged Waco UK Ltd to assemble and furnish a number of modular classroom buildings at a primary school, and the contract specified the 26th of each month as the required date for Waco to issue interim applications.

Over the course of the project, the contract administrator (Jacobs) had routinely certified amounts from interim applications that were made three to four days after the contractual valuation date. It was this conduct that Waco later alleged formed the basis of the estoppel.

The critical payment application was issued by Waco on 22 September 2014. Jacobs did not certify payment because the application had been made too early. Waco referred the dispute to adjudication and quickly secured a smash and grab victory, which Leeds sought to challenge by way of Part 8 proceedings. The estoppel argument was raised in front of Edwards-Stuart J, and Waco relied on Jacobs’ failure to insist upon the contractual valuation date as a course of conduct that had led it to believe that an application would be accepted even if it had not been made on the precise contractual valuation date, from which it would be unconscionable to permit Leeds to resile.

Edwards-Stuart J was persuaded that there was sufficient evidence of a course of conduct that gave rise to an estoppel. However, the estoppel would only apply to interim applications made after the specified contractual valuation date, and not before:

“I find that there was a course of conduct by which Jacobs, on behalf of LCC, agreed to accept monthly applications that were made up to three to four business days after the contractual valuation date. Jacobs was the agent authorised to administer the contract and in my view LCC would not have been permitted to reject, in, say, January 2013, had it been minded to do so, an application made three to four business days after the contractual valuation date. That would be inconsistent with the course of conduct that was by then established.”

Jacobs’ conduct had created an estoppel that, on different facts, would have entitled Waco to payment. The point may be crucial in other cases, but it is equally important to note the limits that Edwards-Stuart J identified in relation to Jacobs’ authority to bind Leeds to the estoppel.

The court had to look to the authority conferred upon Jacobs and determine whether they were acting within the ambit of that authority or whether they were exercising more broad powers and purporting to vary the terms of the contract; in the latter case Leeds would not be bound by the estoppel. However, because the contract had specified that the valuation dates would stand “unless otherwise agreed”, in this case Jacobs was merely exercising the contractual power vested in Leeds as its agent.

Grove Developments Ltd v Balfour Beatty Regional Construction Ltd

The estoppel argument was ventilated more recently in Grove Developments v Balfour Beatty, again by a contractor in relation to a successful smash and grab adjudication that was challenged by way of Part 8 proceedings.

Balfour Beatty had been engaged to build a hotel and serviced apartments adjoining the O2 Complex in Greenwich and the contract had included an agreed schedule of 23 valuation and payment dates, but did not identify any valuation dates thereafter. The project was delayed and ran past the final date identified in the schedule. Balfour Beatty issued an interim application seeking further interim payment. The issue was whether it had any contractual right to further interim payments, either on the correct construction of the contract or by estoppel.

Stuart-Smith J ultimately found that there was no right for Balfour Beatty to make further interim applications. The interesting point to note about the decision is the basis on which Stuart-Smith J rejected Balfour Beatty’s estoppel argument.

Balfour Beatty submitted that the parties were operating on the mistaken assumption that Balfour Beatty was entitled to receive further interim payments; the payment certificates Grove issued operated as communications of that mistaken assumption. That argument failed, in part, because:

“… it is a classic example of an attempt to set up an estoppel that is to be used as a sword rather than a shield.”

This is an important limit placed on any estoppel, but one might question why it would bar Balfour Beatty’s claim when the point was apparently never raised in Leeds. In both cases, hadn’t the contractor sought to rely on the estoppel as the basis for its claim for interim payment? However, although the estoppel might have appeared to act as a sword in Leeds, the difference was that in Grove, Balfour Beatty was attempting to use the estoppel to create a right to obtain further interim payments, rather than just varying the route through which an already existing contractual right could be exercised. Waco was therefore able to rely on the estoppel and there was no question of it being used as a sword.

Where are we now?

Although the estoppel argument continues to be aired in smash and grab adjudications and payment disputes, the TCC has yet to fully tease out the limits of the doctrine as it will apply to building contracts and, indeed, the authority of the engineer or contract administrator to bind an employer to the estoppel.

To date, the authorities convey a number of salient points that bear remembering, and will provide useful guidance to construction professionals until more substantive authorities emerge that identify the limits to the doctrine:

  • There will be no estoppel without a sufficient number of occurrences to form a course of conduct.
  • The engineer or contract administrator must have the authority to alter the contractual valuation dates, or else the estoppel will fail.
  • The estoppel cannot be used to create any new rights beyond those conferred under the contract.
Hardwicke Sarah McCann (draft)

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