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Planning for all eventualities: no implied right to payment if contract silent

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Summary: Construction contracts often include schedules providing for payment by instalments on specific dates. That is all well and good, but suppose the parties forget to specify what happens in the event of a delay to completion? If the contract is silent, will the contractor be entitled to further interim payments before Practical Completion (PC)? Grove Developments Ltd v Balfour Beatty Regional Construction Ltd [2016] considered this question.

Facts

In July 2013, the claimant developer (Grove) engaged the defendant contractor (Balfour) under a JCT DB 2011 contract to design and build a hotel and apartments at the O2 complex in Greenwich, London.

The JCT form requires the parties to specify in the contract particulars the day of the month on which interim payments fall due.  Interim payments will then continue on a monthly basis until PC.  Here, the parties instead included a schedule setting out 23 valuation and payment dates for the period up to the contractual date for completion.  However, they failed to state what would happen if completion was delayed.

Work progressed and payments were duly made in accordance with the schedule.  Unfortunately, the works were not complete by the date for completion.  By this time all 23 Interim Applications (IAs) had been made, so the question was: did Balfour have to wait until the final account to be paid for subsequent work?  Much debate took place, but no agreement was reached.  Balfour then took the law into its own hands by issuing IA24.  

Balfour issued adjudication proceedings for payment of IA24 and the adjudicator ruled in its favour.  Meanwhile Grove started Part 8 proceedings, seeking the court's determination on various issues.  The key one was: did Balfour have a contractual right to be paid the amount set out in IA24, or was it only entitled to payment in accordance with the payment schedule?

Decision

The court held that Balfour had no contractual right to make, or be paid in respect of, IA24 or any subsequent application.  The parties had an agreed payment schedule covering IAs 1 to 23 and nothing more.  The fact that it did not provide for interim payments covering all of the work under the contract was unfortunate, but that was no reason to import the payment provisions of the Scheme for Construction Contracts to supplement the parties' agreement and enable the contractor to generate interim payments covering work that the agreement did not cover.

Lessons learnt

Don’t be put off including a contractual payment schedule in your contract.  If you know the key dates on which payment should be made, it makes good housekeeping sense to do so, given the amount of confusion which can arise over payment dates (as recent case law demonstrates).  However, the key is to remember to provide for what will happen if the works are not completed by the original date for completion.

 

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