Make sure that you’re paid as scheduled

Contractors relying on payment schedules need to check the wording, says Stephanie Geesink.

Stephanie Geesink

The recent case of Grove Developments Ltd v Balfour Beatty Regional Construction Ltd [2016] EWHC 168 (TCC) is likely to have contractors relying on payment schedules nervously checking their contracts.

Grove Developments engaged Balfour Beatty (then known as Mansell Construction Services Limited) for the design and construction of a hotel and serviced apartments adjoining the O2 complex at Greenwich Peninsula in south-east London. The parties entered into a JCT Design and Build Contract 2011 with bespoke amends in July 2013.

It was agreed that the contract sum was to be £121,059,632 with a date for completion of 22 July 2015. To govern interim payments under the contract, the parties agreed a schedule of 23 valuation and payment dates to cover the period from September 2013 to July 2015.

The works did not complete by 22 July 2015, and in August 2015 Balfour Beatty issued interim application 24 for £23,166,425.92 plus VAT. Grove Developments served a payment notice and pay less notice. Balfour Beatty claimed the notices were out of time.

Grove Developments argued that Balfour Beatty had no contractual right to issue or be paid in respect of interim application 24 as this went beyond the stipulated payment dates in the schedule, but in the alternative, Grove Developments’ payment notice and pay less notice were served in time.

On 19 November 2015 Balfour Beatty commenced adjudication proceedings claiming payment plus interest. Grove Developments served its response on 4 December, but shortly after this commenced court proceedings in order to finally determine key questions of contractual interpretation which arose in the adjudication.

In January 2016, the adjudicator issued a decision confirming that Grove Developments should pay the remaining sums being claimed by Balfour Beatty.

Grove Developments asked the court to determine whether Balfour Beatty had a contractual right to make interim application 24 (or any subsequent application) and have a right to be paid in respect of that application.

Balfour Beatty suggested that the dates in the schedule were merely examples of when payments were to be made, and submitted that the true meaning of the schedule was that it continued indefinitely. Alternatively, Balfour Beatty relied on the Construction Act 1996 and the accompanying Scheme for Construction Contracts to “fill the gaps” left by the provisions of the contract (ie, what is to happen after the 23rd application).

Grove Developments relied on a strict interpretation of the contract, asking the court to find that Balfour Beatty had no contractual right to make Interim Application 24 as the schedule simply did not contain such a provision.

Court decision: stick to what you agreed

The court rejected Balfour Beatty’s arguments, expressly noting that it could not imply provisions from the Scheme which expressly contradicted what the parties had clearly agreed, which is that there would be “23 interim payments on the dates set out in the agreed schedule and no more”.

In doing so, the court has reminded us that it will take a strict view on what the parties have agreed, and will not amend a “bad bargain”, no matter how disastrous the consequences for either party.

This may be considered by some in the industry to be a harsh outcome, as it potentially leaves the contractor without payment for a significant period of time, depending on when the works complete and how long it takes to negotiate further payment provisions.

However, it should be noted that the contractual amendments and background facts in this case were complicated and appear, on the face of it, to have contributed to this result. A well-drafted payment schedule would usually allow for an express provision for further payments should the works be delayed, or alternatively parties may negotiate and agree further provisions if it appears the works are being delayed. Neither of which was the case here.

In any event, this decision will undoubtedly be an important consideration going forward for those entering into contracts which rely on a payment schedule. The contractor should ensure that there is wording which allows any schedule to continue if the works are delayed or extended, or that the contract generally provides a mechanism for further payments as necessary.

 For contractors who have already entered into contracts which rely on payment schedules, it will be important to review the risk of being unable to claim payments beyond any dates or stages in a payment schedule. If there are any such concerns, it will be important to ensure that you negotiate how any further payments are to be dealt with in advance of any delay, to ensure swift payment and maintain cash flow.

Stephanie Geesink is a solicitor at Trowers & Hamlins