Rochford Construction Ltd v Kilhan Construction Ltd
[2020] EWHC 1941 (TCC)
Rochford brought a Part 8 claim against Kilhan, in respect of Interim Payment Application 9, which Rochford disputed was ever properly due and owing to Kilhan. The adjudicator concluded that the due date of IPA 9 was 20 May 2019, being the date on which the notice was served, and that the final date for payment was 30 days from that due date, being 19 June 2019. As Rochford had neither served a Payment Notice within five days of the due date nor a Pay Less Notice no less than seven days prior to the final date for payment, the sum was owing in default. Rochford claimed that as Kilhan had not submitted an invoice until October 2019, its notice was within the period allowed for a pay less notice.
Rochford refused to pay the sums due so Kilhan brought Part 7 adjudication proceedings to recover the payment, and that payment was satisfied by Rochford shortly before the hearing. Rochford, had originally hoped to have the Part 8 proceedings heard at the same time as the enforcement proceedings, but Mr Justice Fraser refused to allow that because it would lead to an adjournment of the original hearing:
“The question therefore becomes: should the winner in the adjudication have to wait to have its opposed enforcement application heard, to a date much later in the term when the court can accommodate a whole day hearing? In my judgment, not only would that be the wrong approach, it is contrary...to the approach of the TCC. I would go so far as to say it would be wrong in principle to adopt such a course.”
Rochford said that the adjudicator did not, but the Court should, give effect to the express terms of the subcontract which required (i) Kilhan to issue its Interim Payment Applications on the last day of each month; and that (ii) the final date for payment should be fixed by reference to Kilhan’s service of its invoice.
Did the contract provide an adequate mechanism for determining how and when payments became due? Rochford said that there was a clear requirement in the subcontract that application for the payment must be made on the last day of each month. The contract particulars stated: “Application date end of month”. That meant literally, the date at the end of the month. Rochford accepted that on the odd occasion the last day of the month might fall on a non-business day, but the proper construction of the subcontract would be that any application would potentially need to be submitted either on the last business day of any month or in good time to enable the last business day to be met.
Mrs Justice Cockerill felt that this argument depended ”upon reading far too much” into a phrase which was not, absent additional material, clear and unambiguous. Did it mean “on the end of the month”, “by the end of the month”, “after the end of the month”, “the final business day” or “the final calendar day”? What if the final day of the calendar month is not a business day? The parties’ own dealings did not help as they demonstrated applications being submitted after the end of the month. Further, the context in which the wording appeared was under a “brief description of subcontractor works to be carried out”. That, said the Judge, was “not really a part of the contract to which one would look naturally for key terms”. This mattered because the term in question was not simply a term which said “submission end of month” but a term which was in its nature a condition precedent in the sense that if Kilhan did not submit by such a date, the claim in respect of this period could not be brought at this time”.
The contract also contained the wording: “payment terms thirty days from invoice as per attached payment schedule” and “valuation monthly as per attached payment schedule end of month”. No payment schedule was produced, but Mrs Justice Cockerill considered that the words “end of the month” were best seen in this context as pertaining to the period for the application rather than as a condition precedent to the entitlement to make a claim for the period”. This meant that the Scheme applied. The due date implied by the Scheme is the date of the making of a claim by the payee. This meant that any payment notice had to be issued not later than five days after the due date.
Given the reference in the contract to the invoice, the Judge considered that it was “tolerably clear” that the parties contemplated the invoice and payment certificate coming together sometime after the claim was notified, and that that would be at or close to the due date. Thus, the 30-day provision seemed to have been intended as a final due date provision. However, practically, given the absence of the payment schedule, the Judge did not consider that the provision could survive. The Judge stressed the need for certainty and the need for the scheme of the parties to be workable.
So when was Kilhan to issue its invoice? The Judge thought that it was “counterintuitive to put the stress on [an] invoice which does not form the necessary constituent part of the statutory Scheme”, in order to excuse the non-service of the payment certificate, which does form part of the statutory Scheme. Absent a proper date for the payment certificate, it would be set at five days after the due date. Here, given the absence of any provision for the timing of the invoice, apart from the non-existent schedule, the Scheme’s provisions effectively have to act as a substitute because what the parties had was unworkable:
“Pegging the final date to service of an invoice, which is itself pegged to a payment certificate, is simply impractical.”
The Judge accepted, albeit “with some diffidence”, that properly construed, section 110 of the HGCRA required a final date for payment provision to fix a time period, albeit that that might itself depend on an event to fix the due date. While a due date can be fixed by reference to an invoice or a notice, the final date has to be pegged to the due date, and be a set period of time, and not an event or a mechanism. This was important as the payer must be certain how much time they had in which to serve a Pay Less notice, and the final date for payment was the critical date in that step.
It may therefore be prudent to check whether the final date for payment in your contract is fixed by reference to a set period from the due date and not by another event, for example the issue of an invoice.
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