A Judgment has recently been handed down in the case of Elements (Europe) Limited v FK Building Ltd [2023] EWHC 726 (TCC). Although the parties settled the dispute following the hearing, Mr Justice Constable felt it appropriate to hand down the Judgment anyway, due to it touching on the proper construction of an important element of a JCT standard form contract which does not appear to have been specifically considered before.

What was the background?

A sub-contractor, Elements (Europe) Limited (“Elements”) was successful in an Adjudication against FK Building Ltd (“FK”), the main contractor, relating to a Payment Application issued by email on 21 October 2022 and timed at 22:07. FK considered this was late, and therefore contractually invalid. The Adjudicator decided that FK was liable for the sum of £3,950,190.52 plus interests and costs.

Both parties commenced Court proceedings - FK to seek a final determination on the validity of the Payment Application, and Elements to enforce the Adjudication decision. The two proceedings were heard together in March 2023.

The Contract in question was the JCT Standard Building Sub-Contract Conditions 2016 Edition with bespoke amendments. Clause 4.6 provided that a Payment Application for interim payment may be made ‘so as to be received not later than 4 days prior to the Interim Valuation Date for the relevant period […]’. The relevant Interim Valuation Date was 25 October 2022.

FK’s argued that the word ‘received’ meant that the contractual requirement was for the Payment Application to be received 4 clear days ahead before the Interim Valuation Date. Clear days would require 4 full days between receipt of the Payment Application and the Interim Valuation Date, i.e. by 20 October 2022. In addition, it was argued that the Payment Application needed to be received on or before the end of site working hours.

What was decided?

Mr Justice Constable decided that:

• In the absence of specific wording, the requirement that a Payment Application be ‘received’ no later than 4 days before the Interim Valuation Date could not be sensibly interpreted as imposing a timescale of 4 clear days. The final date for the Payment Application was therefore 21 October 2022; and
• Where the contract does not include a specifically defined time period for a document or notice to be issued (e.g. ‘within business hours’ or ‘by no later than 5pm’), the providing party will have until 23:59:59 on the relevant day to complete that step.

Ultimately, the Payment Application was held to be valid and the Judge decided that the Adjudication decision should be enforced.

What are the takeaways?

One of the most common causes of disputes relates to issues with contractual payment mechanisms. The Courts have emphasised that a failure to comply with payment mechanisms will have severe consequences. A notice which is issued out of time will not be valid. The consequence of this is that, should an employer fail to issue a valid Payment Notice or Pay Less Notice, they will be required to pay the sum claimed by the contractor, regardless of whether that sum accurately reflects the value of work delivered.

The decision in this case is an important reminder to have careful regard for the specific wording in your contract. In the absence of more specific contractual wording, it is also useful guidance for calculating deadlines and (specifically) the time by which important notices should be served.