Court of Appeal considers payment schedule dispute

In a decision last week, the Court of Appeal has dismissed an appeal in the Grove Developments case (reported previously by us in March this year), upholding the TCC’s decision that the contractor had no entitlement to further interim payments where dates in an agreed payment schedule had been exhausted prior to practical completion.

Balfour Beatty Regional Construction Limited v Grove Developments Limited

For an overview of the original TCC decision, see our previous Law-Now here. It decided that there was no automatic right to extend a payment schedule until practical completion was achieved and, crucially, no entitlement to additional interim payments arising beyond the last date in the agreed schedule. The practical consequence for the contractor was that it would have to wait until its final account before receiving any further payments.

The contractor, Balfour Beatty (“BB”), appealed on three grounds.

Could the payment schedule be extended by interpretation or through an implied term?

BB argued that to interpret the contract in a way which prevented any further interim payments was to create a “commercial nonsense” and that parties could not have intended that, if practical completion was delayed, BB would have to wait until the final payment date in terms of the Final Account.

The Court rejected this ground. Lord Justice Jackson opined that it was clear from the contract that parties only agreed interim payments up to a specific date and as such, it was impossible to deduce what the further notice, valuation and payment dates would be after that specific point in time. He added that this situation was a “classic case of one party making a bad bargain” and it was simply not the Court’s role to interfere and rescue the offended party. There was no ambiguity in the case which would enable the Court to interpret the contract with “commercial common sense”.

The Court also rejected the potential for any implied term to apply.

If not, did the Construction Act apply to fill the gap?

BB referred to s.109(1) of the Housing Grants, Construction and Regeneration Act 1996 (the “1996 Act”) which states that “[a] party to a construction contract is entitled to payment by instalments, stage payments or other periodic payments for any work under the contract…” and argued that “any work” in fact meant ‘all work’ and as such, the contract failed to provide for an adequate payment mechanism for interim payments for the entire duration of the works that it carried out.

This ground was also rejected and the Court was not satisfied that “any work” did in fact mean ‘every single piece of work’ and that the section relied upon was in fact a more general requirement that work carried out should be subject to a regime of interim payments. The contract did that and although ‘unusual’ satisfied the requirements of the 1996 Act.

Agreement to extend?

BB also argued that an agreement had been reached through correspondence to extend the payment schedule but this was found not to be made out on the evidence. Unfortunately for BB, therefore, the Appeal was dismissed.

Conclusions and implications

The strict approach taken in this case is likely to apply to other cases where a payment schedule “runs out” before the completion of a project, potentially creating significant cashflow issues for the contractors concerned. Parties cannot rely on the court to interfere with an agreed bespoke position where it later transpires that one party has a “bad deal”. It is vital, therefore, that parties recognise the importance of this decision and where bespoke provisions are being negotiated, fully anticipate all circumstances which may affect a project and ensure that adequate protection for interim payments is carried through until the works are actually completed as opposed to a longstop date in the contract. As noted in our earlier Law-Now, a simple formula such as naming the date of the month for payments would suffice.

References:

Balfour Beatty Regional Construction Ltd v Grove Developments Ltd [2016] EWCA Civ 990

Grove Developments Ltd v Balfour Beatty Regional Construction Ltd [2016] EWHC 168 (TCC)