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A string of cases from 2014 and 2015[1] highlighted how important it is to issue payment notices and payless notices strictly in accordance with the terms of the contract. If they are not, then the paying party will be taken to agree the value stated in the application, whether it is right or wrong.

But it seems from a recent TCC case[2] that in certain circumstances it may not even be enough for a paying party to issue a payment (or payless) notice in accordance with the terms of the contract.

In this case, Bouygues employed Febrey to construct a concrete frame and structural topping for a new building at the University of Bath. Payment terms were included at clause 21 of the contract, whilst there was a payment schedule, setting out dates for payment, at Appendix 10. The payment schedule was something of a ‘Heath Robinson’ affair- it was hand-written and was almost illegible. However, it did set out the various payment dates.

Febrey commenced works in May 2015. The project appeared to be running smoothly, with payments being regularly applied for and paid until October 2015.

For the October payment cycle, Febrey issued an application for payment for £144,582.06. In response, Bouygues served a payment notice for minus £2,041.27 on 23 November 2015. This was the deadline for payment notices specified in the payment schedule.

On the face of it, you might think that Bouygues had done nothing wrong in issuing its payment notice on 23 November 2015. This was, after all, the deadline specified in the payment schedule. However, there was a problem. The date given for the payment notice deadline (23 November 2015) did not comply with the Housing Grants, Construction and Regeneration Act 1996 (the Construction Act) in two important respects:

  1. The payless notice deadline (20 November 2015) was before the payment notice deadline[3]; and
  2. The payment notice deadline was more than five days after the due date (the due date was 16 November 2015)[4].

In light of this, Febrey argued that the date of 23 November for the payment notice date was a mistake and that it should have been the same as the payless notice date, i.e. 20 November 2015. In that case, Bouygues payment notice would be out of date.

The Court agreed with Febrey. It concluded that the date of 23 November 2015 for the payment notice date must have been a mistake, and the correct date should have been 20 November 2015. It gave two main reasons:

  1. This interpretation would mean that the payment schedule would comply with the provisions of the Construction Act; and
  2. For every other month, the deadlines for payment notices and the payless notices were the same.

Conclusion

Bouygues must have felt aggrieved that, despite the fact it complied with the terms of the contract and the payment schedule, its payment notice was still invalid and it lost its right to pay less than Febrey’s application. It was put in this position due to a drafting error. The payment schedule was handwritten and had probably not been checked by lawyers to see if it complied with the Construction Act. The lesson is therefore clear: employers and contactors should make sure that payment schedules are carefully checked for compliance with the Construction Act, preferably by their lawyers.

For more information, email blogs@gateleyplc.com.

[1] including: Caledonian Modular Limited v Mar City Developments Limited [2015] EWHC 1855 (TCC) and ISG v Seevic College [2014] EWHC 4007.

[2] Bouygues (UK) Limited v Febrey Structures Limited [2016] EWHC 1333 (TCC)

[3] In contravention of Section 111(5)(b) of the Housing Grants, Construction and Regeneration Act 1996.

[4] In contravention of Section 110A(1)(a) of the Housing Grants, Construction and Regeneration Act 1996.


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.