Construction case: Caledonian Modular Ltd v Mar City Developments Ltd [2015] EWHC 1855 (TCC)

5 November 2015

Construction case: Caledonian Modular Ltd v Mar City Developments Ltd [2015] EWHC 1855 (TCC) 

Juli Lau, associate in the procurement team, and trainee solicitor Uzma Raja explain how a recent case makes clear that contractors will not be able to issue a variation to a payment application and expect to render void any pay less notice served prior to the variation.  

Background

Mar City Developments, as employer, entered into a letter of intent with Caledonian Modular, as contractor, for extensive construction works at a site in North London.  On 30 January 2015, Caledonian Modular submitted interim application 15, which amounted to around £1.5 million.  In response, Mar City Developments issued a pay less notice, setting out a net amount due to it of around £6,500.  

A few days later on 13 February 2015, Caledonian Modular submitted further documents to Mar City Developments and asked it to amend its pay less notice in respect of interim application 15.  Responding to Mar City Developments’ query as to the status of these documents, Caledonian Modular responded by identifying them as an ‘update of the account’.

Consequently, Mar City Developments did not issue any further payment or pay less notice, until 26 March 2015 when it responded to Caledonian Modular’s next interim application.  Caledonian Modular proceeded to launch an adjudication.  Its main argument was that the document served on 13 February 2015 was a fresh interim application and Mar City Developments’ failure to submit a pay less notice meant that the sum of £1.5 million crystallised as the notified sum.  

The adjudicator accepted Caledonian Modular’s argument and decided that the application on 13 February 2015 did indeed constitute an interim payment application and so the later pay less notice submitted on 26 March 2015 was out of time. 

Caledonian Modular commenced enforcement proceedings in respect of the adjudication. 

Decision

Although the adjudicator’s decision is generally enforced by the court, the judge stated that an exception can be made, where the merits of a claim that underlie the adjudicator’s decision can be determined as a short, self-contained point and without the need for oral evidence.  It was deemed that such an exception existed in this case. 

The judge decided that the documents sent on 13 February 2015 did not constitute an application for an interim application.  None of the documents, nor the covering email, stated that they were a new application for an interim payment.  Furthermore, Mar City Developments had asked Caledonian Modular for a clarification as to what these documents were.  Caledonian Modular’s response had been to refer to the documents as an ‘update’ and so there could be no suggestion that this was a new interim application. 

The claim for enforcement of the adjudicator’s decision was rejected.  

Implications

It is clear from this judgement that contractors will not be able to issue a variation to a payment application and expect to render void any pay less notice served prior to the variation, in the expectation that the employer will fail to serve a pay less notice in response to the varied payment application.  It is also a good reminder to employers to be clear about the nature of payment applications and associated documents served on them and, if in doubt, to seek clarification from the contractor about the intended nature of the documents. 

This case further illustrates that where a point of contention arising from an adjudicator’s decision is short and self-contained and requires no further evidence, the court may intervene to correct the issue.  

Ultimately, this case confirms the court’s strict interpretation of the payment provisions under the Housing Grants, Construction and Regeneration Act 1996, and the fact that these provisions are not bypassed when a variation to an earlier payment application is served.  

For further information, contact Juli Lau on 020 7405 4600 or email jlau@sharpepritchard.co.uk

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published.

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