Henia Investments Inc v Beck Interiors Ltd

[2015] EWHC 2433 (TCC)

The parties entered into a fit-out contract based on the JCT Standard Building Contract without Quantities 2011 as amended. Interim payment due dates were 29 November 2013 and thereafter the same date in each month (or the nearest “Business Day” in that month). The Works were delayed by around 11 months. On 5 September 2014, the CA issued a Non-Completion Certificate purportedly pursuant to clause 2.31 of the Contract Conditions to the effect that the Works had not been completed, listing various works said not to have been completed.

On 28 April 2015 under cover of an email, Beck submitted its “Interim Application for Payment No: 18”, claiming £2.9 million. The Application included over 100 pages of backup. On 6 May 2015, the CA issued its Interim Certificate No. 18 showing a net sum payable of £226k. Beck did not issue an Interim Application for Payment in May 2015 but on 4 June 2015 at 00.03 the CA issued Interim Certificate No. 19 in the net sum payable of £19k. On 17 June 2015, Henia issued a “Payless Notice” purportedly pursuant to clauses 4.12.5 and 4.13.1 of the Contract, saying that there was “£0” due to the Contractor. This was based on Certificate No. 19 and its entitlement to liquidated damages for 40 weeks’ delay at the weekly rate of £15,000. Mr Justice Akenhead had to consider the following:

As a starting point, Mr Justice Akenhead looked to what had been agreed under the Contract. He concluded that it was clear that the parties had not followed the contractual requirements with any precision. Beck’s Interim Application No. 18 was late by 6 days and Interim Certificates Nos 18 and 19 were both issued late, No. 18 by one day and No. 19 by 3 minutes in the middle of the night. Mr Justice Akenhead stressed the importance of being able to ascertain whether a document is an Interim Application or not:

“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. In this context, the Interim Application should be considered in the same light as a certificate. 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.”

The Judge also considered that a contractor must state what it considers due “at the relevant due date”. The relevant due dates are spelt out in the Contract. Here, the material ones in this case were 29 April and 29 May 2015. Whilst it is not absolutely necessary that the specific due date is expressed in the Interim Certificate, it must be clear and unambiguous that an application relating to a specific due date is being made. The Judge then had to consider whether or not the Interim Application of 28 April 2015 was and could be taken to be intended as the relevant Interim Application for the relevant due date of 29 May. If it was then the payless notice was not served in time.

There was a relevant due date on 29 April 2015; that would have been the 18th relevant due date under the Contract. The use of the words “Interim Application for Payment No: 18” pointed to an intention that it was to relate to the 18th application for the 29 April payment due date. If the Interim Application was intended to be taken as relating to the 29 May 2015 due date, the use of the 30 April 2015 date demonstrated if anything that either Beck was anticipating doing absolutely no work of value between 30 April and 29 May 2015 or that it was forgoing any interim entitlement to whatever work it was anticipating doing over those 29 days; both these scenarios were unlikely. The only argument to support the submission that the 28 April 2015 Interim Application was intended to be the Interim Application for the 29 May 2015 due date was that, because it was out of time for the 29 April 2015 due date, it must be taken as relating to the later due date as being the next in time. This was the approach which had been taken by the adjudicator.

The Judge disagreed. Interim Application No. 18 was not in substance, form and intent an Interim Application in relation to the payment due date of 29 May 2015. However, the Judge still had to consider whether Payless Notices can effectively challenge the valuation certified by the CA or where applicable an Interim Payment Notice as opposed to merely setting up arguable cross-claims or other deductions expressly envisaged by the Contract.

Here the Judge noted that the parties had agreed that the CA was required to certify what it “considers to be or have been due at the due date to the Contractor in respect of the interim payment” (clause 4.10.1). This meant that “as a matter of commercial common sense”, an Employer might wish to disagree with the Interim Application or Interim Payment Notices submitted by the Contractor and that both parties might disagree with what the CA has certified. There was nothing in the Contract wording to suggest that the Employer could not legitimately challenge either the amount certified by the CA or the amount claimed within the Interim Payment Notice. There was nothing commercially illogical in the Employer being permitted to do so. It was clear that the Payless Notice can include and allow deductions and other set-offs which the Employer is entitled to make or claim. Therefore a Payless Notice “generally and in this case” could properly challenge either the CA’s certification or any Interim Payment Notice.

The Payless Notice can not only raise deductions specifically permitted by the Contract and legitimate set-offs but also deploy the Employer’s own valuation of the Works. In this case, all the Employer did was to challenge the Contractor’s most recent application for payment (Interim Application No. 18) by way of putting forward the CA’s most recent evaluation (albeit that the Certificate in question, Certificate No. 19, was issued late). There was no suggestion that the Employer was acting in anything other than a bona fide way. The Payless Notice of 17 June 2015 (clearly served within time for the 29 May payment due date and the final payment date 28 days later) would have provided an adequate agenda for an adjudication as to the true value of the Works and the validity of the alleged entitlement to liquidated damages for delay.

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