Projects & Construction
The TCC's recent decision in Rochford v Kilhan , in which Mrs Justice Cockerill made obiter comments that final dates for payment cannot be linked to "an event or mechanism" means that final dates for payment linked to invoices may well fall foul of the Construction Act.
Rochford and Kilhan entered into a subcontract for the construction of a reinforced concrete frame in August 2018. On 20 May 2019, Kilhan submitted a payment application for about £1.4m. Over five months later, on 23 October 2019, Rochford issued a payment notice for about £1.2m. A dispute arose concerning whether Rochford's payment notice was issued late and that it failed to specify how this amount was calculated. The matter was referred to adjudication. The adjudicator's decision was in favour of Kilhan, with the adjudicator concluding that a payment notice had not been served within the required timeframe and a payless notice was not served in the time required prior to the final date for payment. 19 June 2019 was considered to be the final date for payment.
Kilhan brought proceedings to enforce the adjudication decision in the TCC, prompting Rochford to seek a declaration to give effect to the express terms of the subcontract that "the final date for payment… is 30 days from the date of service of a relevant invoice". The court had to decide whether these terms provided an "adequate mechanism" for determining when payments became due in accordance with s110 of the Construction Act.
The court was unconvinced that the subcontract was clear as to when the due date arose. It found that there was no certainty as to when payment should be made given the payment provisions referred to "thirty days from invoice as per attached payment schedule", yet the payment schedule never materialised. Cockerill dismissed the claim in favour of Kilhan.
In her obiter comments Cockerill commented that "Pegging the final date to service of an invoice, which is itself pegged to a payment certificate, is simply impractical”. A final date for payment must therefore be fixed to a due date on the grounds that allowing it to be triggered by an event would give the payer unfair control over the payment process.
These obiter views are significant given the frequency in which final dates for payment in construction contracts are linked to the issue of VAT invoices or 'float' payments. Provisions in contracts to that effect may now be replaced with implied terms from the Scheme for Construction Contracts (England and Wales) Regulations 1998 (the "Scheme"). This will likely lead to substantially shorter periods for serving payment notices than envisaged under the contract as the period for serving payless notices under the Scheme is only 17 days.