A building company brought a claim for declarations concerning the terms for interim payments made under its contract with a sub-contractor and the validity of one of its payment notices.
The company had sub-contracted the construction of a university building to the sub-contractor in March 2015. Clause 21 of the contract provided for the sub-contractor to apply to the company for interim payments. A payment schedule was contained in an appendix which detailed each stage of the monthly payment process. The company would assess the sub-contractor’s application and payment became due 14 days after the assessment date. Within five days of the due date, the company had to issue a payment notice or pay less notice to confirm what it was going to pay. Under the appendix and the minutes of the parties’ pre-let meeting, which also formed part of the contract, 60% of the payment was payable within 21 days of the company’s assessment; the balance was payable within 35 days. The payment process followed that pattern without problem until the October 2015 application. The sub-contractor applied for £144,582. According to the appendix schedule, the assessment date was 2 November, the due date was 16 November, the payment notice date was 23 November, the pay less notice date was 20 November and 60% was payable by 23 November. On 23 November, the company issued a payment notice. The sub-contractor complained that the notice was invalid because a payment notice had to be issued within five days of the due date under the Housing Grants, Construction and Regeneration Act 1996. The company stated that its notice was valid under the timings in cl.21, and it also constituted a valid pay less notice served in time under the schedule. However, under the Act, a pay less notice deadline could not occur before a payment notice deadline.
The company submitted that (1) cl.21 was compliant with the Act so should be preferred over the appendix schedule; (2) if the schedule was applicable it should be construed and adjusted to render it compliant, which would push back the pay less notice and 60% payable dates, making its notice valid.
HELD: (1) The appendix schedule did not render the contract invalid unless, on its true construction, the schedule was rendered ineffective. The schedule was specifically referred to in the pre-let meeting minutes, and those minutes specifically referred to the payment split of 60% of the payment being made within 21 days and the balance being paid within 35 days. That payment split was reflected in the schedule but not in cl.21. The schedule was applicable (see paras 26, 32-33 of judgment).
(2) The context for the construction of the schedule was the dates agreed by the parties. The scheme for application, notice and payment could be seen from the dates for the first application for interim payment in March 2015 and in the pattern that followed until October 2015. Those dates showed that the payment notice and pay less notice had the same deadline in each month and fell within five days of the due date. There was no good reason why the parties would intend for that consistent pattern to be varied for the October application. Therefore, there was an obvious error in the schedule for October 2015 in that the payment notice date was given as 23 November instead of 20 November, the latter being the same as the pay less notice date and within five days of the due date. That reference to 23 November should be construed as 20 November. That construction respected the parties’ agreement that the 60% payable date fell 21 days after the assessment date and was compliant with the Act. The construction and adjustment proposed by the company failed to respect and would be contrary to that express agreement, Manor Asset Ltd v Demolition Services Ltd  EWHC 222 (TCC) considered. Consequently, the company had not served a timeous payment notice or pay less notice (paras 44-54).