| Date | 21 November 2007 |
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| Judgment | Ringway Infrastructure Service Limited and Vauxhall Motors Limited [2007] EWHC 2421 (TCC) |
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| The Issue | The effect of failure by the Employer to issue timely notices of payment under a JCT Standard Form of Building Contract with Contractor’s Design |
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| Implication |
The issue of a timely notice of payment under Clause 30.3.3 is a mandatory requirement and failure to do so is a breach of contract by the Employer. In the absence of a timely payment notice and / or withholding notice, the Employer shall be liable to pay the amount applied for by the Contractor. |
printThis case concerns an application by Ringway Infrastructure Services Limited (“Ringway”) to the Technology and Construction Court for summary judgement to enforce an Adjudicator’s decision that had found Vauxhall Motors Limited (“Vauxhall”) liable to pay Ringway the sum of £1,303,704. The dispute that was referred to the Adjudicator arose out of a contract for the construction of a new vehicle distribution centre at Ellesmere Port, Cheshire where Vauxhall was the Employer and Ringway was the Contractor. In August 2004, Ringway commenced work on site. Between September 2004 and June 2005, Ringway had submitted 10 monthly Applications for Payment for consideration by Vauxhall. The resultant payment notices by Vauxhall in turn entitled Ringway, under the terms of the contract, to raise invoices for payment. The Works were due to have been completed by December 2004. Needless to say, the parties had differing views as to who was responsible for the overrun period between January and July 2005. Ringway believed that it was entitled to substantial additional costs attributable to delay and disruption caused by Vauxhall. In March 2006, Ringway advised Vauxhall that it had prepared a valuation of the works totalling £4,020,759 compared to an original contract value of circa £3,100,000. Over the course of the following year, the parties exchanged a series of correspondence, without conclusion or agreement, on the matter of the value of work undertaken by Ringway. By May 2007, Ringway, having lost patience with Vauxhall’s perceived prevarication, submitted Interim Application No 11 in a gross value of £4,254,445 resulting in a net sum due of £1,303,704. Vauxhall did not respond to that Application and crucially did not issue a payment notice within the timescales prescribed by the contract. Not surprisingly, Ringway gave notice on 18 July 2007 of its intentions to refer to adjudication a dispute over the sums properly due arising out of Interim Application No 11. In the Referral Notice, there was no attempt by Ringway to seek a decision on the valuation merits of Interim Application No 11. Instead it sought to rely solely upon the payment provisions of the contract. Of particular importance to them was clause 30.3.5 of the JCT Standard Form of Building Contract with Contractor’s Design 1999 Edition which stated that where the Employer does not issue a timely payment notice or withholding notice, then the Employer shall pay the Contractor the amount stated in the Application for Interim Payment. In its response to the Referral Notice, Vauxhall challenged the Adjudicator’s jurisdiction to consider the dispute. Vauxhall argued that the referred dispute did not concern its alleged failure to issue payment or withholding notices (as that argument had not been made by Ringway prior to the issue of the Notice of Adjudication) but rather was concerned with the value of the works undertaken by Ringway. In addition, Vauxhall contended that the final date for payment had not arisen as Ringway had not issued an invoice for the net amount claimed under Application No 11. Further defences by Vauxhall included an assertion that the parties had, in the year leading up to the submission of Application No 11, agreed to waive the contractual machinery regarding payment and had, in lieu, adopted a process of negotiation. The Adjudicator was not convinced by any of Vauxhall’s arguments. He held that Application No 11 was a valid Application for Payment under the contract and that Vauxhall, having failed to issue a timely payment notice and/or a withholding notice, was obliged to pay the amount stated in that Application. Given the magnitude of the payment found by the Adjudicator, it was not surprising to find that his decision came before the TCC in an application for summary judgement. Mr Justice Akenhead considered that the essential issue that he had to decide was whether or not the Adjudicator had jurisdiction to decide that, in the absence of any timely payment or withholding notices, Ringway was entitled under Clause 30.3.5 to the net sum claimed in Interim Application No 11. He said that complaints about jurisdiction varied from case to case. In his view, it was very important in considering applications to resist enforcement of Adjudicator’s awards to differentiate between matters which could be raised as substantive defences and those matters which are purely jurisdictional objections. In this instance, he had to consider what, if anything, was in dispute between the parties and, if there was a referable dispute, whether the dispute resolved by the Adjudicator was that which was referred to him. Mr Justice Akenhead found as a matter of fact that the dispute concerned the amount due to Ringway arising from its Application for Payment No 11 and that the issue as to whether Vauxhall had complied or not with the payment provisions of the contract formed part of that dispute. He was of the opinion that the issuing of a payment notice under Clause 30.3.3 was a mandatory obligation on the part of Vauxhall. Its failure to do so was effectively a breach of contract. On a proper construction of Clause 30.3.6.1 (stipulating that upon issue of a payment notice by the Employer, the Contractor would be entitled to raise an invoice for payment), no invoice could be submitted and no final date for payment could be established unless and until the Employer had issued a payment notice. The judge was of the view that, in theory, Vauxhall could, by its own breaches, extend the final date for payment indefinitely. He considered that that outcome did not reflect the parties’ intentions. As far as he was concerned, in instances where the Employer had failed to give the requisite notice of payment, then the Employer must pay the Contractor the amount stated in the appropriate application.
CJ-0746
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