Interim payments – Estoppel – Time limits – Early applications
The TCC had to determine whether an interim payment application made 6 days before the specified contractual date was rendered invalid for being too early. The key issue was whether it was possible that consistent failures to adhere to the contractual payment provisions would create an estoppel which would prevent an out of time payment application from being found invalid. Although Edwards-Stuart J found that it was arguable there was an estoppel for applications made a few days after the contractual date, there was no such estoppel for applications made early and so the application was found to be invalid.
On 16 March 2012, Leeds City Council (‘LCC’) entered into a JCT Design and Build Contract 2005 (Rev 2 2009) with Waco UK Ltd (‘Waco’). The contract was for the design, manufacture and installation of new factory assembled modular Classroom Buildings at Roundhay Primary School in Leeds. The contract provided that Waco would make interim applications on a monthly interval until the date of practical completion, and thereafter once every two months “unless otherwise agreed.”
After the works were started, there were a large number of irregular applications which were made by Waco out of time or on the wrong dates. For the majority of these, the Contract Administrator certified that payment was due and LCC duly paid the sums owed.
Practical completion occurred on 28 March 2013, and Waco’s applications continued to be made either too early or too late. On 22 September 2014 Waco made Application 21 for £484,759.50, a full six days before the contractually specified date of 28 September 2014, but this time LCC did not pay it. It was referred to Adjudication by Waco, and the Adjudicator found in Waco’s favour. LCC therefore brought Part 8 proceedings challenging the Adjudicator’s decision on the basis that the application was invalid under the terms of the contract.
Edwards-Stuart J had to determine the validity of the early payment application. Whilst an application served out of time would ordinarily be enough to render it invalid, it was argued by Waco that LCC had embarked upon a course of conduct that led Waco to believe that applications would be accepted even if not made on the correct date, and this gave rise to an estoppel that would prevent LCC from refusing to pay. Edwards-Stuart J considered that by the end of 2012 the parties had established a clear course of dealing by which applications would be accepted even if made three or four business days later than the contractual valuation date, as this was the ‘unavoidable inference’ from what had occurred.
However, there was no basis for suggesting that there would be an estoppel for payment applications made early. The one-off acceptance of an early application in July 2014 was insufficient evidence, as Edwards-Stuart J considered that this was agreed to out of pragmatism. This position was further supported by the wording of the contract which required an application to “state the financial position as at that date”, which went against any finding that an early application was permissible under the terms of the contract. Edwards-Stuart J therefore found in favour of the employer and determined that the application had been made out of time by being too early, and there was no waiver or estoppel for Waco to rely on in respect of early applications.
Edwards-Stuart J stressed the need for parties to stick to the time limits set out in the contract and to respect them wherever possible. This is particularly so for contractors seeking to rely on the payment mechanisms to their advantage, as any irregularity or default is likely to make the court find favour with an employer.
The TCC did issue a cautionary tale to employers, as they must be wary not to establish a course of conduct whereby they accept late applications up to and until it is most advantageous for them to refuse. Edwards-Stuart J made clear that the court is willing to find a limited waiver or estoppel in those circumstances, although in the present case such an estoppel was constrained enough that the contractor’s early application was still invalid.