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Interim Payment Application: Valid Despite Being Contractually Deficient [January 2017]

Case: Kersfield Developments (Bridge Road) Ltd and Bray and Slaughter Ltd and between Bray & Slaughter Ltd and Kersfield Developments (Bridge Road) Ltd. 
Reference: [2017] EWHC 15 (TCC)
Keywords: Interim Payment Application; Housing Grants and Construction Act 1996 (as amended); JCT 2011
Background
In this case, there were two matters before the court. Kersfield, the claimant, was requesting a final determination of the dispute while Bray, the defendant, was seeking a summary judgment requiring Kersfield to pay the sum it had been ordered to pay in adjudication.
Justice O’Farrell’s judgment is of interest because, as well as confirming precedent in many areas which are often raised in enforcement [1] it also clarifies the effect of contractual requirements when deciding on the validity of interim payment applications.
As set out in the Housing Grants and Construction Act 1996 (as amended) (the “HGCRA”) a valid interim payment application must, at the very minimum, include the sum due on the relevant payment date and the basis on which that sum is calculated[2].
However, as long as this does not conflict with the statutory regime, parties are also free to include additional payment requirements. This is what happened in the present case; the parties had inserted a clause into the JCT 2011 which stated that interim payment applications must be accompanied by “such further information as may be specified in the Employer’s Requirements”. This “further information” included a variety of supporting information and a detailed substantiation of costs.
Judgment
Kersfield had a convincing argument that Bray’s application was not contractually compliant because some of the required information had not been provided. It therefore asked the Judge to declare the payment application invalid.
The Judge in rejecting Kersfield’s arguments, stated as follows:
 “…although deficiency in substantiation of a claim might justify rejection of such claim, in part or in full, it would not of itself render the application invalid. In the event that the contractor fails to provide adequate substantiation as required by the contract, the employer’s remedy lies in issuing a payment notice that excludes that claim, or in issuing a pay less notice that deducts from the sums due the unsubstantiated claim.”[3]
Unfortunately for Kersfield, both its payment notice and pay less notice had been served late and were thus invalid. As a result, Bray was successful in obtaining summary judgement for the full sum of its interim payment application, as previously awarded in adjudication.
Conclusions
1. Interim payment applications gain their validity from compliance with the HGCRA.
The general rule is that, when deciding on the validity or otherwise of interim payment applications, the courts will look at the relevant dates and the requirements as mandated by the HGCRA. A breach of any additional contractual obligations will not itself render an application invalid (although such a breach may be remedied by way of a payment and/or pay less notice).
However, each particular case will be judged on its merits. Part of the ratio of this judgment was that the relevant clause did “not expressly provide that applications are not valid in the absence of such supporting information”.[4] Had it done so, the result may well have been different.
2. The “prescribed period” for the notices may be regulated by contractual provisions.
In this case, the Employer’s agent sent the purported pay less notice two days before the deadline. However, because the pay less notice was sent after 4pm, a bespoke contractual provision meant that it was deemed to have been served on the following working day. An intervening weekend meant that the following working day was too late, and the notice was invalid.
The Judge gave short shrift to Kersfield’s submission that this bespoke contractual provision was contrary to the mandatory provisions of the HGCRA [5] and held that such provision was a “process clause by which the parties have agreed how the service of documents by email is to be treated and regulated”.[6]
The case can be read in full at http://www.bailii.org/ew/cases/EWHC/TCC/2017/15.html
[1] including claims of procedural unfairness, requests that judgement be stayed because of impecuniosity, disagreements over the method of calculating time for the service of notices, an argument over estoppel, and an attempt to return substantially the same matter to adjudication.

[2] HGCRA, Paragraph 11A(3).

[3] [2017] EWHC 15 (TCC) paragraphs 36 and 37.

[4] [2017] EWHC 15 (TCC) paragraph 35.

[5] HGCRA paragraphs 111 and 116.

[6] [2017] EWHC 15 (TCC) paragraph 74.

Robert Earl, Assistant Lawyer

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