Timing is everything on payments, judge rules

A Technology and Construction Court decision has highlighted the importance of clarity over the timing of applications for payment.

The judge in the case of Leeds City Council and modular buildings specialist Waco UK Limited, ruled that Waco must repay the council £484,759.50 plus VAT it had received following an application for an interim payment.

After an adjudicator ruled in February this year that Waco was entitled to the payment, the council took the case to court on the basis that the application for payment was issued prematurely, on 22 September 2014 rather than 28 September 2014, and that the contract it had with Waco – for the design, manufacture and installation of modular school buildings in Leeds – did not allow for interim payments to be made on dates other than those stipulated in the contract.

The court heard that a pattern had been established prior to practical completion, on 28 March 2013, in which Waco submitted applications for payment on a monthly basis. These were usually made three or four days after the date provided for in the contract and were paid by the agent acting on the council’s behalf.

After practical completion, the contract arrangement was that interim payment applications should be made at two monthly intervals. Applications were made in April, July and September 2013, all of which were a couple of days late and were paid, but the agent objected when the November 2013 application was made two days early.

Although an application for a payment of around £13,000, made in July 2014, was met, the council then refused to pay the September 2014 application that was the subject of the court case. When Waco made an application on 28 November, for the same sum – which the council argued was because the company had recognised its September application was invalid – the agent issued a notice stating that the amount due from the council was nil.

Finding in the council’s favour, Mr Justice Edwards-Stuart said he found the July application – which Waco had argued had been submitted late for March or May – had been prematurely submitted for July, adding: “I do not consider that that, by itself, amounted to any form of implied representation that it would waive a similar irregularity in the future: one swallow does not make a summer.

He added: “If an application were to be made significantly outside the three to four-day period of leeway that had been established by the conduct of the parties, [the agent] would be under no obligation to accept it since it would not be a valid or permissible application.

“I consider that Waco was under an implied obligation to submit the application within a reasonable time – that being a matter of a few days – …which means the date on which, by the terms of the contract, the application had to be made.”

Palmers’ partner Adam Davis who specialises in construction issues,  said: “The case demonstrates the potentially costly risks involved in not sticking to specified payment arrangements in contracts. While the pattern of late applications may have indicated some flexibility on the part of the employer, the fact that the contractor was consistently late in submitting applications led to this arrangement becoming established and implied.

“It is crucial that both employers and contractors protect their interests by ensuring there is complete clarity about payment dates, due dates and dates by which notices are to be served in contracts and the safest approach would be not to deviate from these. For more information, please contact us.”