REUTERS | Denis Balibouse

Are we closer to an end to smash and grab adjudications?

It’s not clear whether the adjudicator in Henia Investments v Beck Interiors was dealing with a “smash and grab” adjudication, since the judgment contains so few facts about that aspect of the parties’ dispute. However, I think the case is yet another example of the tide turning against those who want to “smash and grab”, and reflects the continuing moves by the TCC to supervise our industry where it perceives there may be an injustice or gamesmanship.

Henia Investments Inc v Beck Interiors Ltd

Beck Interiors was employed by Henia Investments under an amended JCT Standard Building Contract without Quantities, 2011 Edition, to carry out fit out works to a property in Knightsbridge, London. Turner & Townsend acted as the contract administrator (CA). The original contract sum was just under £4 million, with the works due to complete in September 2014. Monthly payment due dates were agreed as being the 29th of each month (or nearest business day).

The works were delayed and were due to complete in August 2015, 11 months late. In September 2014, the CA had issued a non-completion certificate but not an extension of time.

In June 2015, Beck referred a dispute to adjudication. Apparently, that adjudication considered the same issues that the court was asked to deal with in the Part 8 application. That means the adjudicator must have looked at the various applications for payment and other notices, and had to decide which way money was due to flow. We don’t know the details, but it seems that when he issued his decision, it was:

“…overall in the Employer’s favour albeit on one issue he was in favour of the Contractor.”

He also thought interim application for payment 18 was intended to be the May 2015 application, not the April 2015 (presumably because it was issued late).

To explain this, it’s necessary to set out details of what happened:

  • On 28 April 2015, Beck submitted its interim application for payment 18, identifying just over £2.9 million due to it (the gross value was £6.5 million). The due date was 29 April 2015. Beck’s interim application had to be issued at least seven days before the due date (that is, by 22 April), so it was six days late.
  • On 6 May 2015, the CA issued interim certificate 18. The net sum payable to Beck was some £226,000. This should have been issued by 5 May (no later than five days after each due date), so was issued one day late.
  • Beck did not submit an interim application for payment 19.
  • On 4 June 2015, the CA issued interim certificate 19. The net sum payable to Beck was some £18,900. The judgment says this was issued late by “3 minutes in the middle of the night”.
  • On 17 June 2015, Henia issued a pay less notice, saying £0 was due to Beck, partly because it had a 40-week claim for liquidated damages (at a weekly rate of £15,000). This was issued early, as Henia had until 23 June (no later than three days before the final payment date).

When it came to the Part 8 application, Akenhead J was asked (among other things) to decide whether:

  • Beck’s interim application for payment 18 was an effective or valid interim payment notice in respect of the 29 May 2015 payment due date.
  • Henia’s notice dated 17 June 2015 was an effective or valid pay less notice.

In short, he sided with Henia, and decided the answers were no and yes respectively. His reasoning is quite detailed (!), but well-worth a read.

Applications for payment

Akenhead J made a number of interesting observations about applications for payment, not least the way the application ought to be drafted and when it should be issued by. He also stresses the importance for parties in knowing whether a document issued by a contractor is an interim application for payment:

“I consider that the document relied upon as an Interim Application under Clause 4.11.1 must be in substance, form and intent an Interim Application stating the sum considered by the Contractor as due at the relevant due date and it must be free from ambiguity… If there are to be potentially serious consequences flowing from it being an Interim Application, it must be clear that it is what it purports to be so that the parties know what to do about it and when.”

That Ronseal slogan springs to mind here, “It does exactly what it says on the tin”.

Akenhead J also identified the key features of an interim application for payment, as required by the parties’ contract:

  • It could be issued at any time more than seven days before the payment due date. He suggested this meant a contractor could submit all its interim applications on day one of the contract, “seeking to anticipate what work values will be achieved for each payment due date”. He acknowledged that while it was theoretically possible, a sensible contractor was unlikely to do this.
  • It must state “the sum that the Contractor considers will become due to him “. The use of the future tense permits the contractor to allow for work it anticipates doing between the date of the interim application and the payment due date.
  • It must state what the contractor considers due “at the relevant due date”. Although he said it wasn’t absolutely necessary that the specific date was included in the application, “it must be clear and unambiguous that an application relating to a specific due date is being made”.

Clearly these key features were lacking in Beck’s interim application for payment 18, otherwise there could not have been a dispute over whether it was April’s application, issued late, or May’s application, issued very early. Akenhead J described it as “some sort of hybrid document” and said:

“…at best the 28 April 2015 document is as consistent with error or misunderstanding as to what was required or even misguided hope that the 28 April 2015 application would be treated as an effective application for the April payment due date on the part of the Contractor as it is with it being intended to be an Interim Application for the 29 May 2015 due date.”

There was clearly room for confusion and the document was not free from “substantial ambiguity”, hence the court’s finding.

Conclusion

Again the TCC has handed down a judgment that reinforces what I’ve said before regarding the serious consequences of the new payment regime, and the importance for parties to ensure strict compliance with their contract.

MCMS Ltd Matt Molloy

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