Fenice Investment Inc. v Jerram Falkus Construction Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Coulson |
| Judgment Date | 07 December 2009 |
| Neutral Citation | [2009] EWHC 3272 (TCC) |
| Docket Number | Case No: HT-09-451 |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Date | 07 December 2009 |
[2009] EWHC 3272 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
St Dunstan's House
133–137 Fetter Lane
London EC4A 1HD
Before: The Honourable Mr Justice Coulson
Case No: HT-09-451
HT-09-452
Mr William Webb (instructed by Field Fisher Waterhouse LLP) for Fenice Investments
Mr Robert Sliwinski (instructed by Davies and Davies Associates) for Jerram Falkus
Mr Justice Coulson:
INTRODUCTION
Donald Keating always advised parties who intended to sign up to construction contracts that they should either use an unamended standard form of contract, or their own homemade contract conditions, and that to attempt a mixture of both was usually a recipe for disaster. This case, arising out of a contested adjudication decision, a CPR Part 8 claim for declarations by one party and a CPR Part 7 claim for enforcement of that decision by the other, is a graphic demonstration of the wisdom of that advice. It also raises a point of wider interest as to the proper approach to be adopted by a party who has lost an adjudication on a point of law.
By a contract dated 1st February 2008, Fenice Investments Incorporated (“Fenice”) engaged Jerram Falkus Construction Limited (“JFC”) to design and construct five residential properties and a commercial unit at a site in Loudoun Road, Camden, in North London. Disputes arose in connection with JFC's application for interim payment No. 19. These disputes centred on whether Fenice had issued a payment notice and/or a withholding notice in time, which in turn depended on the proper construction of the contract.
The dispute was referred to adjudication and the adjudicator decided that JFC's construction of the contract was correct, such that the payment notice and the withholding notice were indeed out of time. He ordered Fenice to pay JFC £177,455.94. Fenice have paid just £12,202.45 and, on 12th November 2009, they issued proceedings under CPR Part 8 for declarations in respect of their interpretation of the contract terms. The following day, 13th November 2009, JFC issued their own Part 7 claim and an application for summary judgment under CPR Part 24 in respect of the sums found due by the Adjudicator.
The issues between the parties can be summarised as follows.
(a) What is the proper construction of the interim payment provisions in the contract?
(b) Do those provisions comply with the Housing Grants (Construction & Regeneration) Act 1996 (“the Act”)?
(c) What is the proper course to be adopted by a party who has been required to pay a sum of money by an adjudicator but who has a bona fide point of law to raise in connection with that decision?
Having set out the relevant terms of the contract and the material facts, I deal with those issues in turn below.
THE CONTRACT
The contract incorporated the JCT Design & Build Contract (Revision 1) 2007. These terms were also the subject of certain specific amendments agreed by the parties. The employer's agent was named as Sawyer & Fisher. Alternative B was the chosen method of payment.
The provisions of the JCT contract as amended, which are relevant to these disputes, were as follows:
“1.3 The Agreement in these Conditions are to be read as a whole but nothing contained in the Employer's Requirements, the Contractor's Proposals or the Contract Sum Analysis shall override or modify the Agreement or these Conditions.
……
4.9.2 Where Alternative B applies, Applications for Interim Payment shall be made on the dates provided for in Alternative B in the Contract Particulars up to the date named in the Employer's Practical Completion Statement or the date within one month thereafter. Applications for Interim Payment thereafter shall be made as and when further amounts are due to the Contractor and upon whichever is the later of the expiry of the Rectification Period or the Issue of the Notice of Completion of Making Good… provided always that the Employer shall not be required to make any Interim Payment within one calendar month of having made a previous Interim Payment.
4.9.3 Each Application for Interim Payment shall be accompanied by such details as may be stated in the Employer's Requirements.
Interim Payments
4.10.1 The final date for payment of an Interim Payment shall be 21 days from the date of receipt by the Employer of the Application for Interim Payment …
4.10.3 Not later than five days after the receipt of an Application for Interim Payment, the Employer shall give a written notice to the Contractor which shall, in respect of that Application for Interim Payment, specify the amount of the payment proposed to be made, to what the amount of the payment relates and the basis on which that amount was calculated.
4.10.4 Not later than five days before the final date for payment, the Employer may give a written notice to the Contractor which shall specify any amount proposed to be withheld and/or deducted from the amount due, the ground or grounds for such withholding and/or deduction and the amount of withholding and/or deduction attributable to each ground.
4.10.5 Subject to any notice given under 4.10.4, the Employer shall no later than the final date for payment pay the Contractor the amount specified in the notice given under clause 4.10.3 or, in the absence of a notice under clause 4.10.3, the amount due to the Contractor as determined in accordance with clause 4.8 …”
The relevant dates for the payments due pursuant to Alternative B were described in the contract appendix as:
“The first date shall be one month after the commencement of the CDM Planning Period and thereafter the same date in each month or the nearest business day in that month”.
The evidence is that JFC had taken possession of the site on 3rd March 2008 and that JFC's first application for an interim payment was made on 7th March 2008. This indicates that subsequent applications were going to be made on or around 7th of each month.
The Employer's Requirements, which was of course a contract document, also contained provisions dealing with interim payments. Section 15 was headed “Evaluation Procedure” and provided as follows:
'Interim payments shall be made monthly by the Employer to the Contractor in accordance with section 4 and Alternative B of the contract conditions.
The evaluation procedure shall be as follows:
a) Contractor to submit to the quantity surveyor his valuation of the work properly executed, any design work carried out and materials and goods delivered to site three days prior to the agreed on site valuation meeting date.
b) The quantity surveyor shall review with the contractor and issue an interim valuation recommendation to the Employer's Agent and Contractor.
c) Employer's Agent to issue interim certificate to the Employer and Contractor within 5 days of the date of issue of interim valuation recommendation. For the purpose of the contract, “the date of receipt by the employer of the application for an interim payment” shall be the date of issue of the interim certificate.
d) The Contractor upon receipt of the Employer's Agent interim certificate shall issue a VAT invoice to the Employer.
e) The Employer upon receipt of the Employer's Agent interim certificate and Contractor's VAT invoice will pay the Contractor within 21 days of the date of issue following the interim certificate in accordance with clause 4.10.1.'
THE EVENTS SURROUNDING APPLICATION 19
JFC submitted Application 19 on 6th August 2009 in the gross sum of £4,209,382.94. This amounted to an application for a net sum of £206,564.74. By reference to clause 4.10.1 of the JCT conditions (see paragraph 6 above), it is JFC's case that the final date for the payment of that sum was 27th August 2009, i.e., 21 days later. Thus they said, in accordance with Clause 4.10.3, the written notice of payment was due by 11 th August and that, pursuant to clause 4.10.4, a withholding notice had to be served five days before 27 th August, namely by 22nd August 2009.
On 25th August 2009, Sawyer & Fisher, the Employer's Agent, wrote two letters to JFC. The first enclosed a certificate for payment. This was in the standard JCT interim certificate form. It stated that the certificate was issued on 21st August 2009, although in fact it appears that the certificate was not actually issued until the 25th. It was in the gross sum of £4,176,583, and it certified as a payment a net sum of £71,473. The second document, which was referred to on the face of the letter enclosing the certificate of payment, was in these terms:
“We refer to your Application for payment No. 19 dated 6th August 2009.
This letter is a notice of withholding and is served pursuant to clause 4.10.4 of the Building Contract dated 1st February 2008.
The notice reflects the Employer's entitlement to withhold the sum of £163,480 from the sum of £71,473, being the sum which has been notified to you as the sum due in the notice/valuation pursuant to clause 4.10.3. The Employer require you to pay the remainder of the sum due, i.e., £92,007, as under clause 2.29.2.1.
The sum which is withheld from you/required to pay is therefore £163,480. The ground for withholding this sum is as follows:
(1) Liquidated damages for extended duration of the work beyond non-completion date:
67 calendar days x 2,440 = £163,480.”
The effect of the certificate and the withholding notice was that no sum at all was paid by Fenice to JFC as a result of Application 19. As noted in paragraph 9 above, JFC said that, pursuant to clause 4.10.3, the payment notice was out of time, and that, pursuant to clause 4.10.4, the 25th August withholding notice was also out of time. They, therefore, sought payment of the sum...
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