Category Archives: Implied Terms

Building Contract: alternative time for Pay Less Notice implied

Under section 111(3) of Housing Grants, Construction and Regeneration Act 1996 (as amended) (“the Act”) a payer can serve pay less notices.

By sub-section (5) the pay less notice must be given “not later than the prescribed period before the final date for payment” but not before the notice by reference to which the notified sum is determined. That notice may be an invoice.

The Act requires the following sequence of events:

-a payment due date,
-service by the contractor of a notice stating the sum due within five days thereafter,
-service of a pay less notice (if required) by the employer not later than the “prescribed period” prior to the final date for payment and,
-finally, payment (of the sum stated in the last notice) on the final date for payment.

Section 111(7) provides that the “prescribed period” means either such period as the parties may agree or, in the absence of such agreement, the period provided by the Scheme for Construction Contracts (“the Scheme”), which is 7 days. So, if there has been no agreement as to the prescribed period, then it is 7 days.

In Manor Asset Ltd v Demolition Services Ltd (Rev 1) [2016] the dispute was about the non-payment of Demolition Services Ltd (DSL)’s invoice for 60% of the price which DSL issued on 23 October 2015, asserting that it had achieved the first milestone in accordance with the terms of the building contract. DSL said under the building contract “payment [was] to be made within 72 hours of receipt of invoice, issued when the milestone [was] achieved”, namely on or by 26 October 2015. So, it contended that the pay less notice issued by Manor Asset Ltd (MAL) on 28 October 2015 was invalid. The adjudicator said that MAL should have issued a pay less notice before 23 October 2015.

However the High Court said that the Act made it clear that the pay less notice could not be issued before the invoice to which it related.

Unless there was a compelling reason to give them any other meaning, the contract words “Payment to be made within 72 hours of receipt of invoice” were clear and unequivocal. They must be understood as referring to “the final date for payment.” They could not have been referring to the deadline for service of the pay less notice.

Clause 4.5.4 of the contract had said the prescribed period for service of the pay less notice expired on the date 5 days before the final date for payment. That date would have been non compliant with the Act and impossible since it would have been 21 October 2015. That date would have been two days before the notice stating the sum due which had only been afforded by the issue of the invoice.

On that reasoning the parties would have reached no agreement about the prescribed period, with the result it defaulted to the even more non compliant and impossible period ending “7 days” before the final date for payment, under the Act.

This was, therefore, a situation where the building contract made no express provision for what was to happen in relation to pay less notices.

It was therefore necessary to construe the contract or imply a term, that the prescribed period was to be “nil” – thus enabling MAL to serve a pay less notice at any time within 72 hours after receipt of the invoice. In other words, it could be served at any time between receipt of DSL’s invoice and the expiry of the 72 hours following such receipt.

MAL’s “pay less” notice dated 28 October 2015 was therefore out of time and DSL was entitled to summary judgment on it’s claim.

This blog is posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Banksy was the Landlord’s to pass on

What term is to be implied into a lease as to the ownership of a valuable part of a let property which is justifiably removed from the property by the tenant, in accordance with the tenant’s repairing obligation, and so becomes a chattel?

Usually the term, which is to be implied, is that the chattel becomes the property of the landlord. For:

1. the default position is that every part of the property belongs to the landlord. The tenant only has a tenancy for a period of time. If the tenant thinks differently it is for the tenant to show that it is right to imply into the lease a term which leads to a contrary conclusion;

2. the mere fact that the tenant is carrying out its repairing obligation does not imply that it acquires ownership of the chattel which results from part of the property being removed;

3. even if a term could be implied that (1) waste or (2) chattels with just scrap or salvage value belong to the tenant, it did not mean that it should be implied with respect to the ownership of a chattel with a substantial value. Such a term would not be necessary, would not go without saying and would not be one that would be implied as something that might have been raised by an “officious bystander” when the terms of the lease were originally hammered out;

4. it makes no difference that the value is attributable to the spontaneous actions of a third party. Whatever solution is adopted, one party gets a windfall. Who has the better right to the windfall? Usually it will be the landlord.

In The Creative Foundation v Dreamland Leisure Ltd & Others [2015] a Mural attributed to Banksy was removed by the First Defendant (“Dreamland”) from a building at Folkestone (“the Building”). Then the wall was made good. Dreamland was the tenant of the Building.

This was done without the knowledge or permission of Stonefield Estates Ltd (“the Landlord”). The Landlord had assigned to the Claimant (“the Foundation”) its ownership of the Mural and its rights to sue Dreamland. The claim was for the return of that section of wall.

The High Court said the problem arose from the public knowledge that a Banksy had been on the site and would remain the same whether the Banksy was removed by overpainting, cleaning or removal and reinstatement of the wall. The shrine would remain a shrine, whichever method was used. So the removal of the wall was not in any event justified.

Even if it had been justified the wall would still belong to the Foundation as assignee of the Landlord’s ownership of it – under points 1-4 listed above.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Adjudication payment triggered implied contractual right to recover overpayment

Adjudication in construction disputes is designed to provide provisional resolution of disputes to preserve cash flow but the outcome is subject to final determination in later legal proceedings.

Provisions are implied into a construction contract under section 108(5) of the Housing Grants, Construction and Regeneration Act 1996, read with the Scheme for Construction Contracts (England and Wales) Regulations 1998 (“the Scheme”).

By providing that the decision of an adjudicator is binding and that the parties shall “comply with it”, paragraph 23(2) of the Scheme makes the decision enforceable for the time being. It is enforceable by action founded on the contractual obligation to comply with the decision combined, in a normal case, with an application for summary judgment.

The limitation period for enforcement will be six years from the adjudicator’s decision. But the decision is only binding and the obligation to comply with it only lasts “until the dispute is finally determined” in one of the ways identified.

By use of the word “until”, paragraph 23(2) appears to contemplate that there will necessarily be such a determination. The short time limits provided by paragraph 19(1) also indicate that adjudication was envisaged as a speedy provisional measure, pending such a determination.

But there is nothing to prevent adjudication being requested long after a dispute has arisen and without the commencement of any proceedings.

Also its unlikely that the Scheme imposes on either party any sort of obligation to start court or arbitration proceedings in order to confirm its entitlement.

Either or both of the parties might understandably be content to let matters lie.

The Supreme Court in Aspect Contracts (Asbestos) Ltd v Higgins Construction Plc (2015) has now provided some guidance as to when those proceedings must be brought and has come to some conclusions which could have bizarrely inconsistent results.

In that case Aspect had failed to pick up some asbestos on a survey which later impeded and added cost to Higgins’ contruction work. Higgins were awarded over £600,000 adjudication which was 75% of their claim. Aspect paid.

The contract was not entered into as a deed so the limitation period for bringing proceedings for breach of it was 6 years rather than 12 years from breach.

More than 6 years after their breach of contract Aspect sought recovery of monies they had paid Higgins under that adjudication award. However they issued proceedings for it within 6 years of paying it.

Aspect rested its claim on an implied term, alternatively in restitution.

The implied term was that:

“in the event that a dispute between the parties was referred to adjudication pursuant to the Scheme and one party paid money to the other in compliance with the adjudicator’s decision made pursuant to the Scheme, that party remained entitled to have the decision finally determined by legal proceedings and, if or to the extent that the dispute was finally determined in its favour, to have that money repaid to it.”

The court said it was a necessary legal consequence of the Scheme implied by the 1996 Act into the parties’ contractual relationship that Aspect must have a directly enforceable right to recover any overpayment to which the adjudicator’s decision had led to, once there had been a final determination of the dispute.

The obvious basis for recognising that right was by way of implication arising from the Scheme provisions which were themselves implied into the construction contract.

If and so far as the court’s decision abolishes the basis on which the payment was made an overpayment is, retrospectively, established. Repayment must then be required either by contractual implication or, if not, then as an independent restitutionary obligation.

Since Aspect’s cause of action arose from payment and was only for repayment, then whether it was analysed as in implied contractual terms or restitutionary terms, it was a cause of action which could be brought at any time within six years after the date of payment to Higgins on 6 August 2009.

Higgins complained that this gave Aspect a one-way throw and undermined finality. By delaying commencement of the present claim until 2012, Aspect can sue to recover all or part of the £658,017 paid to Higgins, without having the risk of ending up worse off, since Higgins was barred by limitation from pursuing the £331,855 balance of its original claim.

That, however, resulted from Higgins’s own decision not to commence legal proceedings within six years from April 2004 or early 2005 and |Higgins has assumed the risk of not confirming (and foregoing the possibility of improving upon) the adjudication award it had received.

Adjudication had been conceived as a provisional mechanism, pending a final determination of the dispute.

Though it was understandable that Higgins should wish matters to lie as they were following the adjudication decision, Higgins could not ensure that matters would so lie without either pursuing legal or arbitral proceedings to a conclusion or obtaining Aspect’s agreement. In the absence of Higgins doing that there would be finality.

This post is made out of general interest. It does not replace the need to get bespoke legal advice in individualcases.

Court implies duty on Seller to cooperate in property sale conveyancing

In the scenario where a defaulting Buyer has its deposit at risk on a flat purchase and arrives at a settlement agreement, to what extent is the Seller impicitly obliged to cooperate in the normal conveyancing process to meet the deadlines laid down in the settlement for one of the Buyers to buy an alternative flat off the Seller?

In Gateway Plaza Ltd v White [2014] the Buyer concerned had been given till 28 March 2012 to “exchange contracts” for the purchase of the alternative flat.

However the Seller’s large Leeds conveyancing solicitors sent the Buyer’s solicitors documentation still wrongly in the joint names of the Buyer and the other original buyer (who had by now dropped out of the purchase and then died) and for whatever reason did not provide the CML disclosure of incentives form required by the Buyer’s Mortgagees under the Council of Mortgage Lenders’ Rules. In consequence the purchase had still not been completed in May and the Seller alleged that the Buyer had failed to take the alternative flat purchase available to him under the settlement and so must suffer the full financial consequences of not going along with the alternative flat offer compromise.

The High Court had no difficulty inferring terms that it had been incumbent on the Seller to comply with the normal conveyancing process and requirements of the Buyer’s solicitors and of its lender to meet the deadline and to have done all the things normal Sellers’ solicitors would do including produce correctly drawn documents and a CML Certificate.

So it was the Seller, rather than the Buyer, who had failed to comply with the obligations, which were impliedly imposed on the Seller under the settlement agreement as soon has the Buyer had decided to take up the opportunity the settlement offered of the alternative flat.

This is no “rocket science”.

Applying one of the standard tests for implying legal terms, if at the settlement hearing a “reasonable bystander” had asked whether the Seller would cooperate with the conveyancing process the Seller would hardly have said “no”. The parties would have both said “of course”.

Different rules apply to court settlements like this though. Under normal land contracts its not safe to rely on implying terms as Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 requires all terms to be express and contained in the contract and (where applicable) other documents whose terms are properly incorporated by reference into the contract.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.