A steady stream of cases has come through the courts since the payment provisions in the Construction Act were overhauled. Mark Clinton looks at the most recent.

Above: Mark Clinton is a partner at Thomas Eggar, recently merged with Irwin Mitchell LLP

We have now had four and a half years to get used to the revised payment since they came into effect in October 2011. 

Another in the line of cases was decided recently in Manor Asset Ltd v Demolition Services Ltd.  This case is of particular interest because it illustrates the care and skill required when amending standard form contracts. 

Although we may feel familiar with the JCT standard forms, we should not forget that they are quite complex documents, liberally sprinkled with cross-references in which various provisions are inter-dependent.  When amending the payment provisions we need to take into account the inter-dependencies and the requirements of the Act.

Four months after entering into their contract, the parties in Manor Asset decided to convert their contract payment regime from interim progress payments to stage payments.  They did so in a one page agreement which replaced the section of the contract headed ‘Interim payments up to practical completion’.  Unusually, the amendments provided for payment within 72 hours of invoice.  The paragraph covering the payment which was in dispute described the stage to be achieved and the percentage of the price to be paid at that stage and then stated:

‘Payment to be made within 72 hours of receipt of invoice, issued when the milestone is achieved.’ 

At first glance, that provision looks quite straightforward, but how does it square up with the requirements of the Act?  What are the due date and final date for payment of this instalment?  The court decided that the due date was the date the milestone was achieved and the final date for payment was 72 hours after the invoice was received.  The amendment should have provided that the invoice had to be issued within five days after the due date but that did not matter in the circumstances because the issue was issued on the due date itself.

This all led to another difficulty.  The Act gives the payer the right to serve a pay less notice before the final date for payment.  The time for serving it is to be stated in the contract or, if no period is given, it must be served no later than 7 days before the final date for payment.  In this case the contract stipulated 5 days but it is not clear whether that provision survived the amendment.  Whether it was 5 days or 7 days, the pay less notice would be required before the date of the invoice and before the due date.  That is not permitted because the Act does not allow a pay less notice to be issued before the payment notice to which it relates (in this case, the invoice).

These difficulties meant that there was a risk that the amendments would have to be declared ineffective because they did not comply with the Act.  In the event the court found a pragmatic solution.  The judge decided that the parties had impliedly agreed that the period for serving a payless notice had been reduced so that it could be served any time after receipt of the invoice but before the final date for payment.

It is also worth noting that there was some debate as to whether a payment notice can be given before the due date.  In this particular case it could not because the contract said it was to be given when the milestone was achieved.  Since the due date was the same as the date when the milestone was achieved, the invoice could not be issued sooner.  However, the Judge said that he was not convinced that the Act permitted payment notices to be given before the due date.  That is a point that may well be revisited in another case.

Although the simplicity of the amended provisions in the Manor Assets case is in some ways admirable, when such provisions are being drafted for use in a complex contract (albeit a minor works form) against the backdrop of complex statutory provisions, there is inevitably a degree of complexity required in the amendments themselves.  It is also necessary to look beyond the clause that is directly the target for amendment and to look at other clauses which might be affected by the amendment.  There are particular dangers in replacing clauses wholesale.  The lesson is, proceed only with great caution and with an abundance of attention to detail.

About the author:  Mark Clinton is a partner at Thomas Eggar, recently merged with Irwin Mitchell LLP