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Do you know the requirements for a valid interim payment application?

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Summary: The courts are currently inundated with disputes over whether a party’s payment notice or pay less notice was validly served. So how can you be sure that your application meets all the requirements for a valid notice?

In Jawaby Property Investments Limited v The Interiors Group & Black [2016], the claimant employer (Jawaby) sought a declaration that an interim payment application issued by the contractor (TIG) was invalid.  Jawaby sought a further declaration that a notice given by its own agent was a valid pay less notice. 

The court held that TIG’s application did not constitute a valid payment notice, because it did not clearly state on its face that it was an interim application for payment.  However, it also rejected Jawaby’s contention that the pay less notice served by its agent was valid. 

Jawaby advanced several arguments as to why TIG’s notice was invalid.  First, it had been served by email, which was contrary to the notice provisions of the contract.  The court rejected this argument, finding that the claimant had waived its right to rely on strict compliance with the notice clause, due to a previous course of dealing. 

However, Jawaby’s alternative contention - that the payment application was not valid because it did not follow the usual pattern – was more successful.  TIG had stated that the email contained its “initial assessment”. This implied that this was not its usual monthly application for the amount due, but that some further document was to follow.  The court upheld this argument and found in favour of Jawaby.

Having held that the payment notice was not valid, the judge did not, strictly speaking, need to rule on the validity of the notice served by Jawaby’s agent.  However, he went on to make a decision on this issue in any event, finding that the document was not a valid pay less notice, since it was not intended as such. 

What does this mean in practice?  

The judgment does not make new law, but reinforces the position, established in Henia v Beck, that notices must be clear in substance, form and intent. 

Interestingly, the judge declined to follow the reasoning of Edwards-Stuart J in Leeds v Waco [2015]. In that case it was held that an employer’s series of waivers in relation to interim applications that failed to comply with the contractual requirements (because they were a few days late) did not bind it in relation to further non-compliant applications, as “one swallow does not make a summer”.   In Jawaby, one swallow was capable of making a summer.

Conclusions

The judgment demonstrates how important it is for contractors to comply strictly with the contract provisions dealing with payment notices.  If you are an employer, you should ensure that you do not waive your right to insist on strict compliance with these provisions, since a failure to do so now could make you vulnerable to waiver arguments in future. 

For both parties, it is important to make clear on its face that a document is intended to be a payment application or a pay less notice, and the period to which it relates. 

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