REUTERS | Toby Melville

What notice? Did I forget something?

Given the “draconian consequences” of getting the timing under the Construction Act 1996 wrong, I can only imagine what a sinking feeling a party must experience when it realises that it hasn’t served a payment or pay less notice on time. In Kersfield Developments (Bridge Road) Ltd v Bray and Slaughter Ltd, it is likely to have happened to the employer’s agent on a Friday evening one day late last summer.

Kersfield Developments (Bridge Road) Ltd v Bray and Slaughter Ltd

In early 2015, Kersfield Developments employed Bray and Slaughter to convert Burwalls and its stable block into luxury apartments, and to build a number of detached houses in the five acres of grounds. According to the Bristol Post, Burwalls had the “largest price tag ever seen for a Bristol house” when it was put on the market in 2012. It also had an interesting past, being built by Joseph Leech (the owner of the Bristol Times) in the 1870’s, then being the family home of the Wills tobacco family before being requisitioned by the War Office to house the anti-aircraft regiment who were defending Bristol during the Second World War. Ultimately, it was bought by Bristol University to house students and then used for conferences and as a wedding venue.

It was a significant project and Bray’s contract was priced at £4.9 million. Although I understand the project isn’t finished yet (it seems there are disputes as to delays, defects and valuations), the marketing material makes them look desirable, especially being so close to the Clifton Suspension Bridge.

Anyway, I digress, so back to the issues in hand.

Bray’s applications for payment

From O’Farrell J’s adjudication enforcement proceedings judgment it seems that Bray applied for 18 interim payments without incident. These applications were sent to the employer’s agent (EA) by email, with accompanying spreadsheets. The parties would meet to discuss the application and thereafter, the EA would issue a payment certificate and return Bray’s spreadsheet’s marked up to reflect its valuation. Bray would then issue an invoice and Kersfield would pay the invoice.

The judgment doesn’t explain why this pattern changed with interim application 19 (IA 19). On 5 August 2016, Bray did what it always did, and sent IA 19 through to the EA with the accompanying spreadsheets. It applied for just over £1.2 million (plus VAT) (with a gross valuation of £7.4 million). This time, there wasn’t a meeting of the parties. In fact, there wasn’t anything until the EA sent a payment notice by email and letter on 12 August 2016. This was already late, as the EA noted (it should have been issued by 10 August 2016). Because it was late, a pay less notice was included with the payment notice.

Now, the parties had “sensibl[y] and reasonabl[y]” agreed an amendment to their contract (in clause 1.7.3A) that provided for the service of notices, certificates and the like by email, but they had to be sent by 4.00 pm on a business day, otherwise they were deemed to be served on the next business day.

The email of 12 August 2016 was sent at 9.50 pm. (Although the judgment doesn’t explain why, I understand there may have been good reasons for this). As 12 August was a Friday, this meant that Bray did not receive the pay less notice until Monday 15 August 2016. The pay less notice was due by 14 August 2016. Therefore, it was late.

The late payment notice meant that the sum applied for in IA 19 became the sum due and the late pay less notice meant Kersfield could not deduct anything from that amount. On 17 August 2016, Bray issued an invoice for the amount set out in the payment notice (some £78,000), but it reserved its rights when it did so and it referred to the pay less notice as the “purported pay less notice”. It received payment of the invoiced amount after it issued a notice to suspend, but the balance remained outstanding and was referred to adjudication in September 2016.

A “smash and grab”

There is little to say about Bray’s adjudication. After all, it was a smash and grab and led to a decision in Bray’s favour for £1.131 million (being the balance of IA 19).

Enforcement proceedings

I thought Kersfield ran some interesting arguments before O’Farrell J in an attempt to thwart enforcement of the adjudicator’s decision. I wasn’t really surprised at the outcome though (given the lack of a valid payment and pay less notice), although I did have to look at the estoppel by convention point a few times to get my head around what the parties were saying. Although the findings were obiter, they are worth looking at.

Estoppel by convention

This argument arose in part because the contract required Bray to provide “all necessary supporting information”, as set out in the Employer’s Requirements (clause 4.8.4). In the enforcement proceedings, Kersfield argued that IA 19 was not a valid application precisely because the “necessary supporting information” was not provided in relation to certain sums.

As Bray’s counsel explained it:

  • The EA agreed the format of the applications.
  • The EA allowed Bray to believe that its applications were valid and certified payments on account pending further information, which reinforced Bray’s belief.
  • Bray acted to its detriment in continuing to submit applications in that form.
  • It would be unconscionable to permit Kersfield to resile from that shared assumption.

In response, Kersfield’s counsel submitted that Bray was not assisted by the alleged course of dealing:

  • The EA had no authority to vary the terms of the contract.
  • There was no unequivocal conduct on the part of Kersfield in issuing payment notices and making interim payments: that could be seen as the employer co-operating with the contractor to ensure continued cash flow for the contractor.
  • Bray did not rely on any course of dealing. The reason Bray did not provide the substantiation of its claims was that it did not have such substantiation.
  • There would be nothing unconscionable about permitting Kersfield to rely on the contract’s requirements in order to defeat Bray’s claim for unsubstantiated sums.

O’Farrell J reminded us that the requirements of estoppel by convention were set out in Mears Ltd v Shoreline Housing Partnership Ltd and HM Revenue & Customs v Benchdollar Ltd:

“There must be a shared assumption communicated between the parties in question. The party claiming the benefit of the convention must have relied on the assumption. It must be unconscionable or unjust to permit the other party to assert the true position.”

She accepted that the EA could not vary the terms of the contract and then explained that here:

  • There was no evidence of any agreement or understanding as to the content of Bray’s interim applications for payment.
  • The agreed format did not amount to an agreement or assumption that Bray was not required to comply with the contract, or that claims would be accepted and paid without proper substantiation and supporting documents.
  • Payment against the applications, whether on account or otherwise, could be equivocal and therefore would not establish the relevant conduct.

She went on to distinguish two recent decisions where a course of dealing did give rise to an estoppel by convention (Leeds City Council v Waco UK Ltd and Jawaby Property Investment Ltd v Interiors Group Ltd):

“…in those cases, the course of dealing went directly to the irregularity identified i.e. the timing or mode of service. That can be contrasted with this case where there is no evidence that unsubstantiated claims were accepted. Further, in those cases the irregularity in question did not go to the underlying validity of the application, which in this case is governed by clause 4.8 of the contract.”

So, now we know that just because payment was made against earlier applications for payment, that did not give Bray a contractual entitlement to further payment against an invalid application for payment. Luckily for Bray, IA 19 was valid and so the estoppel point didn’t really arise.

I’ll leave you with a bit of the Eurythmics, Here comes that sinking feeling...

MCMS Ltd Matt Molloy

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