Bennett (Construction) Ltd v CMC MBS Ltd

A construction-contract milestone expressed to be payable on sign-off may provide an adequate payment mechanism under section 110 of the Housing Grants, Construction and Regeneration Act 1996. Its ordinary effect may be that payment is due when the relevant work is objectively complete in accordance with the contract, rather than only when a party or third party actually signs a document.

Even if actual certification were required, a party cannot defeat payment by wrongfully preventing fulfilment of that condition. A contractual regime based on percentages payable at completed stages is not inadequate merely because it contains no separate timetable for invoicing.

If payment terms are non-compliant, Part II of the Scheme is incorporated only to the necessary extent. A non-valuation milestone may instead be governed by paragraph 7, preserving the parties’ agreed payment structure.

Bennett engaged CIMC MBS to design, manufacture and install modular hotel bedrooms. The contract provided for five percentage-based payments. Milestones 2 and 3 were payable on the "sign-off" of, respectively, a prototype room and the completed units in China.

Disputes arose as to whether the prototype and units complied with the specification. The High Court held that Milestones 2 and 3 did not provide an adequate payment mechanism under section 110 of the Housing Grants, Construction and Regeneration Act 1996, and later replaced Milestones 2 to 5 with valuation provisions from Part II of the Scheme: [2018] EWHC 2440 (TCC) and [2018] EWHC 2222 (TCC).

The appeal concerned whether sign-off made the payment mechanism inadequate and, if it did, the correct and limited incorporation of the Scheme.

1. Appeal allowed. Coulson LJ, with whom Snowden J and Longmore LJ agreed, held that the contract contained an adequate mechanism for determining what payments became due and when. The declarations sought by CIMC MBS were dismissed.

2. Properly construed, "sign-off" in Milestones 2 and 3 referred to the objective completion of the prototype or units in accordance with the contractual specification. It did not impose a condition that Bennett, the developer or the hotel operator must actually sign a document before payment became due. The varied and informal contractual uses of the expression supported that construction.

3. In any event, actual sign-off could not defeat entitlement where the relevant work had reached the state in which it ought to have been signed off. A party cannot rely on the absence of a condition whose fulfilment it has hindered. The possible participation of third parties did not make the criterion uncertain: the governing criterion remained objective compliance with the specification.

4. The absence of separate dates for invoicing or payment did not make these percentage-based completion milestones unworkable. The relevant completion date was the date on which the milestone became payable. Section 110 required an adequate mechanism, not the replacement of a commercially intelligible stage-payment bargain with a different valuation regime.

5. Obiter, on the contrary assumption that the mechanism was inadequate: Part II of the Scheme is incorporated under section 110(3) only to the extent necessary. Paragraphs 1 and 2 address the section 109 problem of absent agreement on instalments, stage payments or periodic payments. Milestones payable on completion of identified stages, rather than by valuation of work performed, were not payments of the kind addressed by paragraph 2. Paragraph 7 was therefore the appropriate replacement: payment would be due seven days after completion of the work to which each milestone related. Milestones 1, 4 and 5 would remain effective.

6. Wholesale replacement is appropriate only where the agreed regime is so deficient that no coherent scheme can otherwise result. It was not appropriate here.

• Court of Appeal (Civil Division): Allowed Bennett’s appeal and dismissed CIMC MBS’s claims for declarations: [2019] EWCA Civ 1515.
• High Court, Technology and Construction Court: Held that Milestones 2 and 3 did not comply with section 110 of the Housing Grants, Construction and Regeneration Act 1996, while upholding Milestone 4: [2018] EWHC 2440 (TCC).
• High Court, Technology and Construction Court: Held that paragraphs 2, 4 and 5 of Part II of the Scheme should supplant Milestones 2 to 5: [2018] EWHC 2222 (TCC).