![Case Nos: HT-2024-CDF-000004 - [2024] EWHC 933 (TCC)](https://backend.juristeca.com/files/emisores/logo_yJUntHA.png){kind=logo}
Case Nos: HT-2024-CDF-000004 - [2024] EWHC 933 (TCC)
Fecha: 25-Abr-2024
The Part 8 Claim
The Part 8 Claim
The Essential Facts
Morganstone is a building contractor based in Llanelli. Birkemp is a civil engineering contractor based in Pontypridd.
Morganstone is the main contractor for a housing development at a site in Swansea. In December 2021 it subcontracted various groundworks and associated works to Birkemp for a contract sum of £4,466,544.30. The formal sub-contract is dated 16 December 2021; it is necessary, however, to say something about how it came to be made.
On 24 November 2021 Morganstone issued to Birkemp by Dropbox various documents, which included a post-tender review document (ND.2), a monthly payment schedule (ND.8), and a draft sub-contract (ND.9).
The monthly payment schedule (ND.8) comprised a table with the following column headings:
2021/22
Last day of Sub-Contract Application (Specified Date)
Due Date
Payment Notice
Pay Less Notice
Payment in Sub-Contractor Account (Final Date for Payment).
The first column (2021/22) listed the months from April 2021 to March 2022. The second column (Specified Date) listed against each month the final day of the preceding month (i.e. beginning with 31 March 2021 in row 1 and ending with 28 February 2022 in row 12). The third column (Due Date) showed in each row the 14th day of the month (i.e. beginning with 14 April 2021 in row 1). The fourth column (Payment Notice) specified in each case the 19th day of the same month, unless that day was a Saturday (in which case the date was Friday 18th) or a Sunday (in which case the date was Monday 20th). The fifth column (Pay Less Notice) showed either the first or the second Wednesday of the following month (i.e. beginning with 12 May 2021 in row 1). The sixth column (Final Date for Payment) showed in each case the second Friday of the same month (i.e. beginning with Friday 14 May 2021). (Footnote: 1) The monthly payment schedule did not define the terms used in the column headings, such as “Specified Date” and “Final Date for Payment”.
The post-tender review document (ND.2) provided on page 12:
“Frequency of Valuation Applications: Monthly
Date on which Applications to be received: In accordance with the terms of the subcontract order. Refer to ND.8
Payment to be made to Subcontractor within: In accordance with the terms of the subcontract order. Refer to ND.8”.
The draft sub-contract was a three-page document comprising nineteen numbered clauses, printed on Morganstone’s headed paper. Clause 18 provided:
“The Contractor and the Sub-Contractor respectively acknowledge that this Agreement forms the entire contract between the Contractor and the Sub-Contractor to the exclusion of any antecedent statement or representation, including but not limited to the Sub-Contractor’s quotation.”
Of particular importance in this case, clause 10 provided for payments under the subcontract.
“10.1 The Sub-Contractor shall be entitled to be paid, during the progress of the Sub-Contract Works the Order Total specified in the Purchase Order for the Sub-Contract Works. Payment of the Order Total shall be made by interim instalments or stages in accordance with this clause 10 in respect of the Sub-Contract Works performed by the Sub-contractor and properly to the satisfaction of the Contractor, less any retention or discount which is applicable.
10.2 The Sub-Contractor shall submit to the Contractor an Interim valuation statement of the Sub-Contract Works properly executed (‘the Sub-Contractor’s Statement’) not less than 25th day of each calendar month, such last day of each calendar month shall be the ‘Specified Date’. The Sub-Contractor’s Statement shall be made on the basis of the works completed in as defined in the Contract Sum Analysis. The Sub-Contractor’s Statement shall be in such form as the Contractor directs and shall contain the basis upon which the sum is calculated.
10.3 Payment for Sub-Contract Works properly executed as at die [presumably, the] Specified Date, shall be due to the Sub-Contractor 27 days after the Specified Date (‘the Due Date’) and the Contractor shall no later than five days after the Due Date give notice to the Sub-Contractor of the amount calculated to be due to the Sub-Contractor (‘Payment Notice’). The amount of the payment to be made to the Sub-Contractor on or before the Final Date for payment shall, subject to the Issue of a Pay Less Notice to be given under clause 10.4 below, be the amount stated as due in the Payment Notice. If a Payment Notice is not given, the amount to be paid, subject to any Pay Less Notice given under clause 10.4 below, shall be the sum stated in the Sub-Contractor’s Statement. If a valid Payment Notice is not given in accordance with this clause 10.3, the sum to be paid by the Contractor [s]hall be the sum stated in the Sub-Contractor’s Statement, subject to any Pay Less Notice.
10.4 Payment shall be made to the Sub-Contractor by the final date for payment which shall be 35 days after the Specified Date (‘the Final Date’). If the Contractor intends to pay the Sub-Contractor less than the sum stated as due from it in the Payment Notice, it shall, not later than one day before the Final Date (‘the Prescribed Period’), give the Sub-Contractor notice, of that intention (‘Pay Less Notice’).
10.5 Payments shall be due to the Sub-Contractor of any retention deducted pursuant to clause 10.1 as follows:
10.5.1 50% shall be released on the date stated within the Post Tender Review Minutes or as may be varied In accordance with this Agreement and subject to the satisfactory rectification of defects, faults and obligations Identified at completion of the Sub-Contract Works.
10.5.2 100% of the balance shall be released on the date stated within the Post Tender Review Minutes or as may be varied in accordance with this Agreement and subject to the satisfactory rectification of defects, faults and obligations identified during the rectification period (as the appropriate contract provides).
Notwithstanding the foregoing it should be noted that no retentions shall be released until the Contractor is in receipt of an appropriate application for payment in respect of the retention.
10.6 If payment is due under clause 10.4 but payment for that element of the Sub-Contract Works is not made under the Main Contract and the employer under the Main Contract becomes Insolvent in accordance with any part of the definition in either clause 7.1, 7.2 or 7.3 hereof, the Contractor shall be entitled to withhold payment to the Sub-contractor of that amount due for that part or all of the Sub-Contract Works.
10.7 Notwithstanding any other provision of this Agreement, no further sum shall become due to the Sub-Contractor, and the Contractor need not pay any sum that has already become due, either insofar as the Contractor gives or has given the Sub-Contractor a Pay Less Notice under clause 10.4, or if the Sub-Contractor, after the fast [presumably, last] date upon which such a Pay Less Notice could have been given by the Contractor in respect of that sum becomes Insolvent in accordance with any part of the definition in either clause 7.1, 7.2 or 7.3 hereof, until the Sub-contract Works have been comp[l]eted.
10.8 If the Contractor fails to make any payment due to the Sub-Contractor by the Final Date for payment, then the Sub-Contractor shall be entitled to be paid simple Interest on any sum due and outstanding at the rate of 2% per annum above the Bank of England Base Rate which, for the purposes of The Late Payment of Commercial Debts (Interest) Act 1998, shall and is hereby agreed to be a ‘substantial remedy’.
10.9 No payment made by the Contractor shall be construed as confirmation or acceptance by the Contractor that the Sub-Contract Works have been carried out in accordance with this Agreement.”
It is apparent, therefore, that the column headings in the monthly payment schedule (ND.8) correspond to the stages in the payment cycle provided for in clause 10. However, the timetable provided by clause 10 would have been significantly different, as follows:
The application for payment would be made “not less than 25th day of each calendar month”.
The Due Date would be 27 days after the Specified Date, the latter being the last day in each calendar month.
The Payment Notice was due no later than 5 days after the Due Date.
The Final Date (for payment) was 35 days after the Specified Date.
Any Pay Less Notice was due no later than 1 day before the Final Date.
On 26 November 2021 Birkemp responded by email to the documents, raising a number of issues including the following:
“4. The payment date schedule needs to be extended to reflect the likely duration on site.
5. The payment clauses (clause 10) in the contract conflict with those in the schedule—we presume we will work to the schedule.”
On 15 December 2021 Morganstone responded by email to those comments in the following terms:
“4. Agreed, new payment schedule will be issued in the New Year.
5. Agreed, work to Morganstone payment schedule.”
On 16 December 2021 Birkemp sent to Morganstone an email attaching scanned copies of inter alia the foregoing email exchange, ND.2 and the sub-contract; ND.2 and the sub-contract had each been signed in acceptance by Birkemp’s director Mr Brian Bird. Both above and alongside clause 10 of the sub-contract there was written in manuscript, in red ink, “PAYMENT SCHEDULE TAKES PRECEDENCE”.
Work under the sub-contract duly commenced, and the interim payments proceeded smoothly in accordance with the monthly payment schedule.
The dates in the monthly payment schedule ended in March 2022. On 6 April 2022 Birkemp emailed Morganstone:
“Talking to Keith before he went on holiday he mentioned that our payment schedule needed updating, could you issue a new payment schedule please.”
Morganstone responded on the same day, attaching an “updated monthly payment schedule for 2022” (which I shall call “the 2022 payment schedule”), which ran from April 2022 to March 2023.
In his submissions, Mr Smith pointed out that the numbers of days in the intervals between stages differed in the 2022 payment schedule from those in the original schedule. I do not see any relevance in the point. The structure of the 2022 payment schedule was the same as that of the original schedule. The Due Date was the 14th day of the month. The date for the Payment Notice was the 19th day of the month, subject to the adjustment where that was a Saturday or a Sunday. The final date for payment in each month was the second Friday of the month, and the date for the Pay Less Notice was the Wednesday two days before.
For the following year the parties conducted themselves in accordance with the 2022 payment schedule.
On 24 March 2023, shortly before the final date in the 2022 payment schedule, Morganstone sent to Birkemp by email a further monthly payment schedule (which I shall call “the 2023 payment schedule”), which ran for the following twelve months. The 2023 payment schedule had one structural difference from the previous schedules, in that the Final Date for Payment in each month was the third, not the second, Friday. (The date for the Pay Less Notice was correspondingly later, though it remained two days before the Final Date for Payment.)
On 30 March 2023 Birkemp complained to Morganstone that the 2023 payment schedule was incorrect, in that the specified dates for pay less notices and for payments were one week late, and it asked that the schedule be amended and reissued. Morganstone replied, maintaining that the dates were correct. Birkemp in turn maintained its contention that the dates were consistently one week late.
The parties never succeeded in reaching agreement on their difference in this regard. Birkemp made payment applications in accordance with the 2023 payment schedule, as it took no issue with the Due Date in that document, but Morganstone consistently issued pay less notices by reference to the dates in the 2023 payment schedule. It is common ground that Birkemp never agreed to be bound by the 2023 payment schedule and that Morganstone never agreed to revise it so as to make the Final Date for Payment the second Friday in each month.
On 31 August 2023 Birkemp issued the August Application, which was its twenty-second interim payment application.
On 8 September 2023 Morganstone issued a pay less notice against the August Application, making a number of deductions in respect of the amount claimed. However, it did so expressly without prejudice to its primary contention that Birkemp had no entitlement to apply for any interim payments. The contention was explained in the covering letter:
“On 24 March 2023, the second payment schedule having expired, we issued a further schedule of dates for 2023-2024. You made clear on 30 March 2023 that this schedule was not agreed, and repeated that position in numerous emails thereafter. We did not agree with your position and did not issue an amended schedule as requested. Accordingly, no agreement was or has been reached in relation to this.
Consequently, no payment schedule for 2023-2024 has been agreed. Absent such agreement, Birkemp has no right to issue applications for interim payments in that period: see Balfour Beatty Regional Construction Ltd v Grove Developments Ltd [2016] EWCA Civ 990. It follows that we have no obligation to issue a payment notice or pay less notice, and no obligation to make an interim payment.”
Birkemp contested many of the deductions made by Morganstone as being “Inappropriate Deductions”. This produced a dispute that the parties were unable to resolve.
On 4 December 2023 Birkemp issued a notice of intention to refer a dispute to adjudication. The adjudicator was nominated on 6 December 2023. By his Decision, he held that Birkemp had been entitled to make the August Application, that Morganstone had made some impermissible deductions, that Birkemp was entitled to be paid £207,076 together with interest, and that Morganstone should pay his fees.
Birkemp discharged the adjudicator’s fees on 28 February 2024. Morganstone has not made any payment in respect of the Decision. In these proceedings it seeks to establish that it is not obliged to do so.