In the early ’80’s, Soft Cell sang Say hello, wave goodbye. It probably isn’t as well known as the dance floor-filler that is Tainted love, but it is a song that came to mind when I read the Court of Appeal’s judgment in A & V Building Solutions Ltd v J & B Hopkins Ltd.
If you are wondering why, it is because the court held that J & B Hopkins (JBH) had waived goodbye to any right to challenge the validity of A & V Building Solutions’ (AVB) payment application.
A & V Building Solutions Ltd v J & B Hopkins Ltd
This was a dispute arising out of a mechanical and electrical engineering sub-contract the parties entered into in December 2019 for works at the Moulsecoomb University Project in Sussex. The contract sum was £368,000.
Interim payments under the sub-contract were dealt with in clauses 9.1 to 9.8 and Appendix 6, which included a table of dates (for the application, payment notice, pay less notice and final date for payment). In Appendix 6, AVB’s relevant application for payment was due on 21 March 2021. The valuation date was 31 March. JBH would respond on 19 April indicating its valuation by way of a payment notice and, if it wished to serve a pay less notice, it had to do so by 3 May. The final date for payment was 5 May 2021.
On Monday 15 March 2021, AVB sent JBH IA 13, claiming a net sum of £106,619. The following Monday (22 March 2022), AVB sent IA 14. That application was dated 21 March 2021, which was a Sunday. IA 14 showed a net amount due in the sum of £211,773.
JBH responded to IA 14 by email on 1 April 2021. It noted that there were two applications for the period and said it assumed that IA 14 superseded IA 13. It also said a payment and pay less notice would follow, in accordance with the dates set out in Appendix 6. A payment notice in respect of IA 14 followed on 16 April 2021. This indicated that, on JBH’s valuation, AVB had been overpaid some £69,000.
Between April and November 2021, the parties discussed and exchanged correspondence about IA 14 but the dispute was not resolved. Throughout this period, JBH appeared to treat IA 14 as having been validly made. It was only in October 2021, when AVB threatened to start an adjudication, that JBH’s solicitors asserted, for the first time, that IA 14 was not served correctly (although that letter did not explain how or why that was the case).
In November 2021, AVB referred the dispute over IA 14 to adjudication. JBH took the point about IA 14 being served one day late (along with a number of “jurisdictional challenges“, which were later described as “unmeritorious”, and which the adjudicator rejected).
The adjudicator’s decision was issued in January 2022. He decided that IA 14 was valid and awarded AVB some £138,000.
Part 8 application
Before the adjudicator’s decision was issued, in December 2021 JBH made a “pre-emptive strike” and issued a Part 8 claim seeking declarations regarding the validity of IA 14 (among other things).
That application was heard in April 2022 (after the adjudicator’s decision had been issued), with Eyre J finding that a valid payment application could only be made on the specific date set out in Appendix 6. He rejected AVB’s argument that there had been a variation or waiver of the 21 March 2021 date, either because the date had fallen on a Sunday previously (in 2020) without objection from JBH or because of the way the parties had treated IA 14 in correspondence.
Grounds of appeal
AVB initially raised four grounds, although ground two was rejected (it was something to do with a witness not giving evidence before Eyre J). It meant the Court of Appeal had three grounds to deal with, making the numbering that follows seem a little odd!
Ground one. This was concerned with the:
“… substantive and procedural propriety of the Part 8 proceedings: were JBH permitted to commence and/or to continue such proceedings or should they have been struck out? That raised a subsidiary issue: if the Part 8 proceedings were valid, how should they have been addressed in the context of an outstanding adjudicator’s decision in favour of AVB?”
I think this is an interesting reminder of how the courts should deal with Part 8 claims when there are parallel enforcement proceedings, but I’m not going to say more about it.
Ground three. This concerned:
“… the judge’s conclusion that IA 14 had to be made on Sunday 21 March 2021, and that the application made the following day was invalid and of no legal status. Was that the right construction of the Sub-Contract?”
In my view, the validity of IA14 really turned on its own facts, albeit it might be interesting for the ever increasing numbers of parties who have schedules of valuation dates, etc., in their contracts simply because Coulson LJ concluded the bespoke terms in Appendix 6 “trumped” the general terms in clause 9. This meant the judge was wrong to conclude that IA 14 was late and his declarations were wrongly granted.
Ground four. This concerned the judge’s rejection of the variation, waiver and/or estoppel points. For me, this is the really interesting part of the judgment as Coulson LJ found that the judge was “wrong not to find that JBH had unequivocally represented that application 14 was valid”.
Variation, waiver and/or estoppel
It is common for arguments about the validity of payment applications to crop up as an additional point in adjudications. For example, when it is alleged that no valid pay less notice has been served, paying parties will often bolt-on a new challenge about the validity of the underlying payment application (which acts as a default payment notice) when the matter comes to adjudication.
In the future, if such an argument is rolled out, it would appear on the basis of this Court of Appeal judgment that, if the paying party had previously treated the payment application as valid and not reserved its position on this point, then it could be said to have “unequivocally affirmed the validity” of the application. Coulson LJ also referred to the fact that the parties had operated on the basis that IA 14 was valid for around ten months, and that AVB had clearly relied on that common assumption in making IA 14 the focus of its notice of adjudication, rather than repeating steps to resolve the debate by serving a further payment application.
It could be argued that the Court of Appeal’s findings on waiver and estoppel turn on their facts to some extent, and we must remember that they were obiter because, as Coulson LJ said, it was strictly unnecessary for him to deal with this point due to his conclusion on ground three.
However, paying parties who are faced with a smash and grab claim should certainly take heed of the findings and ensure that all arguments concerning the validity of payment applications are vented at the earliest stage, rather than trying to keep their powder dry. Clearly, that power will only remain dry if there has been a reservation!