Final account payments – are you aware of the new TCC guidance?

17 Jan 2018 | Comment


The construction, energy and projects team, led by Senior Associate Mathew Stevens, has successfully obtained a declaration in the Technology and Construction Court (“TCC”) that an adjudicator erred in its decision regarding a dispute under a subcontract.

Background

By way of a sub-contract dated 18 December 2014, Systems Pipework Limited (Systems) was engaged as a subcontractor to Rotary Building Services Limited (Rotary) to supply and install the steam, condensate, chilled water and cooling systems at a creamery in Cornwall (the Contract).  A dispute arose concerning payment.

On 2 September 2016, Rotary provided Systems with a document described as a ‘final account assessment for the works carried out on the above project by your company’.  Rotary, after the event and in a subsequent adjudication, contended that this document was notification in accordance with clause 28.6 of the Contract.

Clause 28.6 of the Contract states:

The Contractor shall assess the proper amount due for payment in respect of the Sub-Contractor’s Final Account based on the information submitted in accordance with clause 28.5 and shall notify the Sub-Contractor accordingly within 13 weeks of receipt of the Sub-Contractor’s proposed Final Account or such longer time as would be reasonable in all the circumstances taking account of the Main Contract conditions.

In the absence of a proposed Final Account submission from the Sub-Contractor in accordance with clause 28.5, the Contractor may value the proper amount due for payment in respect of the Sub-Contractor’s Final Account on a fair and reasonable basis and notify the Sub-Contractor accordingly.

In either case, if such notification is not dissented from in writing by the Sub-Contractor within 14 Days, then the notified figure will be deemed to have been agreed and will be binding on the parties.

The dispute

On 16 September 2016, Systems commenced an adjudication in respect of its entitlement to payment for works carried out after 31 January 2016 (“Adjudication One”).

Four days after Systems commenced its adjudication, on 20 September 2016, Rotary started a second adjudication, seeking a declaration that, pursuant to clause 28.6 of the Contract, Systems was bound by Rotary’s final account assessment of 2 September 2016, save for the elements of the final account that were the subject matter of Adjudication One (“Adjudication Two”).

The same adjudicator was appointed to decide both disputes.

On 15 November 2016, the adjudicator held that:

  1. In respect of Adjudication One, Rotary was liable to Systems’ in the sum of £249,217.43 plus vat; and
  2. In respect of Adjudication Two, Systems’ was bound by the 2 September assessment save for the amount determined as due in Adjudication One.

Consequently, Systems’ issued a Part 8 Claim in the TCC seeking declarations that the adjudicator had been wrong to reach the decision which he did in respect of Adjudication Two.

The decision

The TCC held that the established principles (that is, the need for the application to be in form, substance and intent of an interim application, and free from ambiguity) applied to Rotary’s Final Account assessment.

In addition, the TCC was of the view that “the proper amount due for payment in respect of the final account” (as required by clause 28.6) was an exercise which consisted of two parts: the assessment/valuation of the total amount payable for all the sub-contract work, less previous payments, and any ongoing retention.

As such, the TCC held that it was plain that the document of 2 September 2016 was not a proper notification of the amount due for payment in respect of System’s Final Account. The following reasons were provided:

  1. Neither the accompanying letter, nor the document which it had attached, stated that it was the notification of an amount due;
  2. Neither the letter, nor the attachment, contained any identification anywhere of a particular sum which was said to be due and payable from Rotary to Systems (or vice versa);
  3. Nowhere in the 2 September documents had there been any reference to the reliance upon clause 28.6 of the Contract; and
  4. It was clear from Rotary’s own evidence that the documents of 2 September 2016 had not been the notification of ‘an amount due’.

As a matter of form, the 2 September assessment had been a final account assessment, and not a notification of an amount due.

Conclusion

This decision is helpful as it confirms that the same common sense principles (clear notices, free from ambiguity, properly labelled to ensure the payer is aware that the payment period has been triggered) which apply to interim payments also apply to final account claims. Importantly, a notice that has a draconian effect must make it clear what clause of the contract it has been issued under and must set out the sum that is due.

This case follows on from Costain Limited v Tarmac Holdings Limited case that we discussed last year.  In this case it was held that the claimant had lost the right to make its own Final Account claim because it failed to challenge the defendants assessment of that Final Account in 14 days.

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