Fenice Investments Inc v Jerram Falkus Construction Ltd

Where amended standard-form construction conditions conflict fundamentally with bespoke employer’s requirements, the contractual hierarchy clause governs. The court must first determine whether the provisions can be read together. If they establish different, irreconcilable payment mechanisms, they cannot be reconciled by implying additional periods or disregarding the agreed hierarchy.

Construction payment provisions must provide certainty and promptness. A mechanism making payment dates depend on when a quantity surveyor chooses to complete an evaluation may fail to comply with the statutory payment scheme. An adjudicator’s decision remains binding and must ordinarily be paid despite a bona fide legal challenge under CPR Part 8. Failure to pay may attract adverse interest and indemnity costs.

Fenice engaged Jerram Falkus Construction Ltd to design and construct residential and commercial premises under an amended JCT Design & Build Contract 2007. A dispute arose over the timing of interim payment and withholding notices relating to Application 19.

The adjudicator preferred the JCT payment provisions, found the notices out of time and awarded Jerram Falkus £177,455.94 plus interest. Fenice commenced CPR Part 8 proceedings seeking declarations on the contract construction, while Jerram Falkus brought CPR Part 7 proceedings to enforce the adjudicator’s decision. The proceedings were consolidated.

The issues were the proper construction of the payment provisions, their statutory compliance, the effect of the employer’s agent clause, and whether Fenice was required to pay the adjudicated sum pending its legal challenge.

1. Contract construction. Clauses 4.9 and 4.10 of the JCT conditions and section 15 of the Employer’s Requirements established different payment mechanisms. The conflict was fundamental and irreconcilable. The JCT provisions used the contractor’s application as the starting point and imposed defined payment periods, whereas section 15 made the timetable depend on the issue of an interim certificate, with no fixed period for the quantity surveyor’s evaluation.
2. The resulting uncertainty would defeat the prompt and certain payment procedure reflected in the Housing Grants (Construction & Regeneration) Act 1996. Section 15 could not sensibly be read with clauses 4.9 and 4.10. Clause 1.3 was an express hierarchy clause and required the JCT conditions to prevail. The general principle that bespoke terms may prevail over standard terms was displaced by that clause.
3. Under clause 4.10, the final date for payment was 27 August 2009 and the withholding notice had to be given by 22 August. The notice of 25 August was therefore ineffective. Jerram Falkus was entitled to £165,132.13 plus interest.
4. Section 15 would in any event have failed to comply with the statutory scheme because the intervals at which interim payments became due were uncertain. The court rejected the suggestion that a reasonable period could be implied to cure that defect. The alternative statutory timetable would also have made the notice late.
5. Section 15 was not a notice under Article 3 of the contract. It was not issued after the contract was made and was not clear or unequivocal. The parties had operated on the basis that the quantity surveyor’s evaluation would feed into the contractual payment notice.
6. An adjudicator’s decision is binding and must ordinarily be complied with notwithstanding CPR Part 8 proceedings challenging a point of law. Fenice should have paid pending determination of its challenge. It was ordered to pay the principal and interest within seven days, the Part 8 costs on the standard basis, and the Part 7 enforcement costs on the indemnity basis.

Not stated in the judgment. This was a first-instance decision determining consolidated CPR Part 8 and Part 7 proceedings in the Technology and Construction Court.