Construction case: Henia Investment Inc v Beck Interiors Ltd [2015] EWHC 2433 (TCC)

6 November 2015

Juli Lau, associate in the procurement team, and trainee solicitor Uzma Raja explore a recent case decision which demonstrates that contractual provisions relating to timings will be strictly applied.  

Background

Henia Investment Inc, as employer, entered into a construction contract with Beck Interiors Ltd, as contractor, for fitting out works to a property in Knightsbridge.  The contract payment provisions were contained in clause four and, in particular, these stated:

  • the payment due date was the 29th of each month;
  • the contractor could issue an interim application for payment no later than seven days before the due date;
  • an interim certificate setting out the sum the contract administrator considered to be due could be issued no later than five days after the due date; and
  • if the employer considered that a lesser sum was due as compared to that set out in the interim application/certificate, it could issue a pay less notice up to three days before the final payment date.

Neither party adhered strictly to these provisions, leading to a dispute arising around interim application 18.  This application was submitted by Beck Interiors Ltd six days late, and showed the net sum payable by Henia Investment Inc as amounting to around £3 million, and was for works carried out up to 30 April 2015. 

Although Beck Interiors Ltd did not issue an interim payment application 19, the contract administrator issued interim certificate 19 that stated the sum payable as £18,900.  Henia Investment Inc subsequently issued a pay less notice based on application 19, which valued the sum payable at £0, partly because of its contractual claim for liquidated damages that applied for delayed works. 

Henia Investment Inc issued CPR Part 8 proceedings and the judge was asked to consider:

  • whether Beck Interiors Ltd’s interim application 18 was valid; and
  • whether Henia Investment Inc’s pay less notice was valid.

Decision

The judge held that Beck Interiors Ltd’s interim application 18 was invalid.  This was because the application with regard to the April due date was issued late, yet there was insufficient evidence to show that it was an interim certificate for the May due date. 

Consequently, the fact that interim application 18 was declared invalid meant that the question over whether Henia Investment Inc’s pay less notice was valid or not was no longer relevant.  In any case, the judge helpfully went on to consider whether Henia Investment Inc’s pay less notice would have been valid, had interim application 18 not been deemed invalid, and accepted Henia Investment Inc’s argument that under the contract it would have been entitled to put forward its own valuation of the works, and any deductions that arose as a result of liquidated damages.  

The judge also considered, in passing, the question of liquidated damages, namely, whether the contract administrator’s failure to reach a decision with regard to whether the contractor was entitled to an extension of time, prevented the employer from deducting liquidated damages.  The judge stated that under such a scenario, it would still be possible for the employer to deduct liquidated damages. 

Implications

Following on from the recent decisions of Caledonian Modular Ltd v Mar City Developments Ltd, and Leeds City Council v Waco UK Ltd, this decision once again demonstrates that contractual provisions relating to timings will be applied strictly.  In particular, it emphasises the need for contractors to issue applications for payment that clearly show the due date to which they relate.  

This decision also reinforces the fact that employers’ pay less notices can be used as a means for the employer to challenge the contractor’s or contract administrator’s valuation of the works and provide its own assessment. 

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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