Case Report: Elements (Europe) Ltd v FK Building Ltd [2023] EWHC 726 (TCC)

In the recent summary judgment hearing, Elements (Europe) Ltd v FK Building Ltd [2023] EWHC 726 (TCC) 30 March 2023, the Court considered how “days” should be interpreted, under JCT Contracts, in the context of payment applications and absence of specific timings for performance.

Although both parties had settled the dispute following the draft judgment, the judgment was handed down due to it referring to an important aspect of the JCT Standard Form Building Contract which had not been previously considered by the courts.

Facts

Elements (Europe) Limited (“Elements”), a sub-contractor, was instructed by FK Building Ltd (“FK”), the main contractor, in relation to a remediation works to 312 bi-split modules to aid with the design and construction of a 156 residential apartment scheme (“the Works”) at Uptown Riverside, Springfield Lane, Salford (“the Site”).

The contract issued for the Works was a JCT Standard Building Sub-Contract Conditions SBCSub/C 2016 Edition with bespoke amendments (the “Sub-Contract”). In respect of payment applications, Clause 4.6 of the Sub-Contract provided the following:

“4.6.1. During the period up to the due date for the final payment fixed under Clause 4.22.1 … the monthly due date for interim payments shall in each case be the date 12 days after the relevant Interim Valuation Date …”

4.6.3. Where Clause 4.6.2 does not apply, the Subcontractor may make a payment application in respect of an interim payment to the Contractor either:

4.6.3.1. so as to be received not later than 4 days prior to the Interim Valuation Date for the relevant payment …”.

In contemplation of the above, Elements issued an interim payment application notice No.16 to FK at 22:07 via email on 21 October 2022 (“the Payment Application”) for the sum of £3,950,190.52. The Payment Application was in advance of the interim valuation date of 25 October 2022.

FK refused to issue any payment or pay less notice in respect of the Payment Application on the premise that the 4-day notice period for an interim application had not been complied with due to the timing of Elements’ email.

The dispute between the two parties was referred to adjudication by way of a referral notice served on FK by Elements on 5 December 2022.

Elements argued that the timing of their email enclosing the Payment Application was valid on the basis that the staff receiving emails relating to payments generally worked later hours than site hours and that it is common practice for payment notices under construction contracts to be sent outside of site and business hours. As such the notice served after site hours on the 4^th day before the interim valuation date was valid.

Contrarily, FK’s defence contended that the clause was drafted to merely mean days relying on the convention of “full days” to require the application to have been served within the parameters of site and/or business hours of 20 October 2022 or 21 October 2022.

The arguments put forward by FK were rejected by the Adjudicator; thus entitling Elements to recover the full sum in the Payment Application which by default became the notified sum for that payment cycle.

Following the adjudication, Elements and FK initiated court proceedings, in the TCC, to enforce the adjudication decision and to seek a final determination on the validity of the Payment Application respectively. FK accepted that the adjudication was enforceable and instead pleaded, within its Part 8 application, as to the invalidity of the Payment Application itself which was the basis for the adjudication decision.

Judgment

Mr Justice Constable noted that there was agreement as to the adjudication award being enforceable and acknowledged that the Part 8 claim brought by FK was able to be heard together with the adjudication enforcement application due to the lack of factual dispute and the short nature of the points to be ruled upon.

In relation to the application and the compliance with the Sub-Contract, Mr Justice Constable rejected the arguments put forward by FK in relation to the inference of full or clear days and instead held the content of clause 4.6.3.1 to be interpreted to allow one to serve a payment application at any time on the 4^th day prior to the Interim Valuation Date.  As such, based on the wording of the Sub-Contract, a payment application could be made up until 23:59:59 on 21 October 2021.

Comment

When drafting construction contracts, parties must remember that the law applicable to construction contracts will be interpreted differently to the CPR rules where “full” and “clear” days are the convention for any timescales to comply with. When drafting contracts, and accommodating for any payment deadlines, parties should incorporate specific time deadlines if so required. It is recommended for such clauses to limit the scope of notification to business hours, site hours or to an administratively beneficial time for receipt of any such applications.

The Court, in this case, showed a reluctance to acknowledge commercial workability as a premise for interpretation and valid notification and instead inferred both parties’ intentions to have validly allocated any such risk in the Sub-Contract. Therefore, this case should serve as a reminder to draft contracts diligently; allocating for all such risks to avoid having to rely on a court to interpret, or omit to interpret, the contract in a commercial context.

The case should also serve as a reminder to paying parties to consider submitting payment notices and pay less notices on time even if the validity of the underlying payment application is not agreed.