Case Law Update
In the recent case of Grove Developments Ltd v Balfour Beatty Regional Construction Limited the Technology and Construction Court held that contractor (Balfour Beatty) did not have a contractual right to make or receive payment in respect of interim application 24 or any subsequent application while the works were ongoing (and following the expiration of an agreed payment schedule). Furthermore, if the contractor had a contractual right to payment (which was not the case), the employer's pay less notice was given in time.
Balfour Beatty was employed by Grove Developments Ltd ("Grove") to design and build a hotel and apartments. The contract was based on a JCT contract with amendments agreed by the parties. It was agreed that Balfour Beatty would be paid in stages to be agreed within the first two weeks of execution of the contract. The parties agreed a schedule of 23 valuation and payment dates spanning from September 2013 to July 2015. The works began on 22 July 2013 but had not been completed by the specified completion date (being the second anniversary of the commencement date).
Balfour Beatty proceeded to issue an application for a further interim payment (valuation no. 24) in August 2015. In return, Grove served a "payment notice" and a "pay less notice" on Balfour Beatty.
It was held that, despite the parties trying to reach an agreement on an amended payment schedule prior to the expiration of the first; the parties had yet to agree to the new terms. As neither party was able to come to an agreement on the new terms, the Court had no power to add additional payment dates and to import the provisions of the Schedule for Construction Contracts to fill in the gaps. Moreover, if Balfour Beatty was found to have a contractual entitlement to make or be paid in respect of the valuation 24, the employer's pay less notice was given within time regardless of which date for final payment applied (in this case it was either 25 or 18 September dependent on whether the agreed schedule was found to be in force).
The case highlights the need for contractors to make provisions within their contracts to allow for overruns where there is a specifically agreed schedule of interim applications and payments. As a result of this judgment, where the contract has not provided for overruns, the contractor has no contractual right to further payments until the time the final payment mechanism begins following practical completion, unless the parties are able to agree something. It was further held that there was no reason to adopt the payment provisions of the Schedule for Construction Contracts (England and Wales) Regulations 1998 to allow the contractor to create interim payments covering work that the initial agreement between the parties did not cover.
The case has received much criticism. The case importantly indicates the need for contractors to ensure that the payment schedules within their agreements are as accurate as possible and contains provisions that allow for payments in the event that the project overruns.
For more information, contact Michael Chilton.