Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to the newest version of your browser.

Your browser appears to have cookies disabled. For the best experience of Construction News, please enable cookies in your browser.

Welcome to the Construction News site. As we have relaunched, you will have to sign in once now and agree for us to use cookies, so you won't need to log in each time you visit our site.
Learn more

De Gea and Beck provide reminder of the importance of deadlines

A recent case has shown the potential pitfalls that companies could encounter if they fail to submit documentation on time.

When is a transfer not a transfer?

The answer is when you fail to get your paperwork in on time.

That was the reported cause of the spectacular last-minute collapse of footballer David de Gea’s £29m move from Manchester United to Real Madrid at the beginning of the month.

The case

According to press reports, United and Real concluded a deal at 23:53.

The transfer then needed to be registered by midnight; Real failed to do this and claimed that United only provided the necessary documents at 00:02.

A few weeks before that the Technology and Construction Court quietly reached a similar conclusion in relation to applications for payment and pay less notices under construction contracts in Henia Investments Inc v Beck Interiors Ltd [2015] EWHC 2433 (TCC).

Henia employed Beck to carry out just under £4m of fit-out and construction work at a site in Knightsbridge under a JCTstandard building contract without quantities 2011.

The possibilities

Turner & Townsend was acting as contract administrator. 

The due date for payments under the contract was the 29th of each month.

Beck could issue an application for payment not less than seven days before the due date, stating the amount due on that date.

Turner & Townsend was then required to issue a payment certificate within five days of the due date, with the final date for payment 28 days from the due date.

Henia had to pay the sum set out in the certificate before the final date.

If there was no valid certificate, then Henia instead had to pay the sum set out in Beck’s application, but if Henia wanted to pay less than the sum in either the certificate or the application, it had to issue a pay less notice.

This had to be issued not later than three days before the final date for payment.

If this sounds complicated, it is.

Mr Justice Akenhead noted that the Construction Act has “led to unnecessarily complex provisions, not least those dealing with the consequences of failures to comply with the timing provisions”.

The events

However, as he later decided, complexity is no excuse for failing to comply.

Here is the chain of events:

  • Beck issued interim application 18 on 28 April 2015 (six days late for the April due date) and applied for a net sum of £2,943,098.95 for the period to 30 April 2015.
  • Turner & Townsend issued interim certificate 18 on 6 May 2015 (one day late). It showed a net sum payable to Beck of £226,248.95.
  • Beck did not issue an application in respect of the May due date.
  • Turner & Townsend issued interim certificate 19 on 4 June 2015 at 00:03 hours (three minutes late). This showed a net sum payable to Beck of £18,893.53. 
  • Henia issued a pay less notice on 17 June 2015 (which was in time). This was based on interim certificate 19 and deductions of liquidated damages of £373,751.05. It stated that £0 was due in relation to interim payment 19.

Beck tried to argue that the 28 April application was in fact an application for the May due date, so it was issued in time.

Interim certificate 19 was late (by three minutes) and therefore invalid.

Henia were therefore required to pay £2,943,098.95 unless it had served a valid pay less notice.

Beck also argued that the pay less notice could not be used to avoid the application and/or certificate mechanism for determining the amount due – it could only be used to deduct liquidated damages.

The decision

The court decided that Beck was wrong on both counts.

The contract provided that the application for payment had to show the amount due on the relevant due date.

The 28 April application showed the amount due to 30 April not 29 May.

It was therefore not an application as the contract had defined it, and counted for nothing.

The court also decided that, even if the application/certification mechanics had resulted in £2,943,098.95 being due on 29 May, the contract simply allowed Henia to pay less than the amount in the certificate if it issued a pay less notice in time, stating the sum due and the basis on which it had been calculated.

This meant that Beck was effectively entitled to revise Turner & Townsend’s certificate to zero.

Fair?

Some commentators have suggested that this is unfair because an employer is permitted to circumvent the contract administrator’s valuation.

In my view, the purpose of the pay less notice is to make it absolutely clear whether or not there is a dispute, which allows the contractor to start legal proceedings if it needs to.

In this case the court issued a judgment within four months of the events occurring, albeit on specific issues.

On timescales like that, knowing when you can start an adjudication or go to court has real commercial value.

The main point though is to learn the lesson Manchester United, Real Madrid and Beck have learned: meet your deadlines – they are called that for a reason.

Alex Hirom is a partner at Bond Dickinson

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions. Links may be included in your comments but HTML is not permitted.