I spoke last night to SCL Hong Kong last night on Termination in Construction Contracts at the HKIAC It was delightful to see so many old friends, not least Ian Pennicott SC QC , now Chairman of SCL Hong Kong. A text of the paper will be posted in due course
Little did I realise when on 10th August 2015 I appeared in front of Akenhead J in the TCC and Part 8 proceedings brought by Henia Investments Inc against Beck Interiors that I would be appearing in the last hearing to be conducted by that Judge before his departure from the Bench back to the world of International Arbitration. When he formally retires, I will write a piece about his career and about the current, former and future position of the Court – it may be remembered that I was Chairman of TECBAR during the reforms that led to the Court being staffed by High Court Judges.
The proceedings raised three issues about the JCT Standard Form. The first related to the requirements for a valid interim application for payment and the third to the procedures that led to the levying of liquidated damages. I will write separately about the decision on those two issues. This blog, however, focusses on the second issue considered by the Court. In summary, the Court was considering whether a Pay Less Notice (a creature of the amended scheme of the HGRCA) could re-value the works and give a different valuation from that which the Employer or his certifier had put forward at the time of the original valuation.
The decision raises an issue of considerable general importance.
The regime under this Contract, which was in the JCT Form, was that the Contract Administrator was to issue an Interim Certificate not later than 5 days of the Due Date for Payment. If the Contract Administrator did not do so, then the Contractor’s application stood as the Interim Certificate. Thereafter, the Contract permitted the Employer to serve a Pay Less Notice no later than 3 days before the Final Date for payment, obviously a considerable period after the date required for the issue of the Interim Certificate.
In Henia, the Contract Administrator did not issue an Interim Certificate in time. Accordingly, the Contractor’s application (assuming it to be valid) stood as the Payment Certificate. In due course and within time, the Employer gave a Pay Less notice which purported to revalue the works and to make other deductions in the case of damages. The Contractor argued that the Pay Less Notice could not deal with valuation, that being the subject matter of the Interim Certificate. The Employer argued that a Pay Less Notice could deal with any reduction in payment that the Employer wished to make, whether it to do with the valuation or not.
The Judge agreed with the Employer and decided that a Pay Less Notice could revalue the Works and contradict the Interim Certificate.
The provisions of the JCT Contract were consistent with the amended Housing Grants Act and therefore the decision construes both the Contract and the Act. A review of the consultation process which led to the amendments to the Act which introduced Pay Less Notices does not really help. There was a lot of unhappiness apparent in the consultation process with the Withholding Notice regime and the technicalities that it had given rise to. However, what also came through the consultation process was the view that the Contractor had to have a good idea of what he was going to receive as early as possible and at Payment notice stage. Hence the provision for Interim Certificates to be issued within 5 days of the Due Date for Payment.
The effect of the decision in Henia is that the Employer need now not worry about the Interim Certificate phase at all. It is of no significance. The Employer can do whatever he likes to the application at the Pay Less Notice stage whatever he or his Contract Administrator has said at the Interim Certificate stage. Accordingly, the Employer or his Agent, whether an independent certifier or not, can put any figure it likes in the Interim Certificate and alter it at the time in the Pay Less Notice. The effect of that is that Contractors can now have no real idea what amount they are going to receive until 3 days before payment is in fact due to be made. It is difficult to see that that is what Parliament intended.
In Henia there was in fact a Contract Administrator. The Employer argued and the Judge appeared to accept that the Interim Certificate phase was for the certifier to certify and the Pay Less Notice phase for the Employer to challenge it if unhappy with it. Even if that were right, it would not take the argument any further. The legislation applies whether or not there is a certifier. Assuming that there was no certifier, the effect of the Judge’s decision would be that the Employer would simply be able to change his mind about the valuation.
The Judge did not deal with the Contractor’s argument as the Pay Less Notice was to express the Employer’s position as to what was due at the date of that Notice, it could not deal with valuation. This meant that there was to be, if the Employer was right, a subsequent revaluation at a date later than the assessment date for the Interim Certificate . The Pay Less Notice tells you what is due at the date of that Notice, whereas the Interim Application tells you what is due at an earlier date linked to the date for payment.
Against that it has to be recognised that the words “Pay Less Notice” are apparently wide. They are neither defined nor confined.
This is a big decision for Contractors as it materially undermines the protection that they got from the Statute. Whether this decision is right will ultimately be a matter for the Court of Appeal. This was recognised by the Judge who have permission to appeal, though it is understood that there will not in fact be an appeal in this case.
Construction law lost a good friend with the sudden death in July of Lynne Freeman, a much respected and liked Solicitor. Lynne was at Hammond Suddards in Leeds, then at Stephenson Harwood and then at Reed Smith. She was a very good lawyer and a brilliant manager of cases and clients. She was more than that – a kind and good friend for whom nothing was too much trouble.
She instructed me in a very large multi handed case about a very large house in Yorkshire. She performed brilliantly – I will though always remember her difficulties with cars which apparently sent motor insurers running for cover. When on her way to a con she managed to drive herself into the middle of a gangland fight, from which she had to be rescued by armed police.
We will miss her very much.