Fenice Investments Inc v Jerram Falkus Construction [2009] EWHC 3272 (TCC)

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes


Where there was an irreconcilable conflict between payment provisions in the Employer’s Requirements and the payment clauses of the JCT Terms, the latter prevailed by virtue of the hierarchy clause in the JCT Terms.  A losing party who makes a challenge to an adjudicator’s decision by issuing proceedings for a declaration on a point of law must, in the ordinary case, in the meantime pay the sum found by the adjudicator to be due.  If that party fails to do so, then, whatever the result of the proceedings for a declaration, it should expect to be penalised for its default by way of both interest and costs.  
Technology and Construction Court, Mr Justice Coulson


Fenice Investments Inc (“Fenice”) engaged Jerram Falkus Construction Limited (“JFC”) to design and construct five residential properties and a commercial unit in North London.  The contract included the JCT Design& Build Contract (Revision 1) 2007 as amended by the parties.  The contract contained provisions as to payment in the JCT Standard Form and also contained bespoke provisions dealing with interim payments, as set out in the Employer’s Requirements.  Clause 4.10.1 of the JCT Terms provided the final date for payment of an Interim Payment was 21 days from the date of receipt by Fenice of JFC’s Application for Interim Payment.  Clause 4.10.3 provided that Fenice should give written notice to JFC not later than 5 days after the receipt of the Application for Interim Payment specifying the amount of the payment that Fenice proposed to make.  Clause 4.10.4 stated that any withholding notice had to be issued within 5 days of the final date for payment.  The Employer’s Requirements contained a number of terms regarding interim payments which potentially conflicted with the JCT Terms.  In particular, the Employer’s Requirements provided that an interim certificate should be issued five days after the issue of Fenice’s quantity surveyor's interim valuation recommendation.  This conflicted with Clause 4.10.3, which said that the interim certificate (or the written notice of payment as it is there described) should be issued five days after the employer's receipt of the contractor's application.  Since the quantity surveyor could not begin his evaluation until after receipt of the contractor's application, any certificate or payment notice would always be later than the contractor's application on which it was based.  The JCT Term contained, at Clause 1.3, a hierarchy clause that gave precedence to the JCT Terms over the Employer’s Requirements. 

A dispute arose between the parties with reference to an application for interim payment, Application No. 19.  JFC submitted Application 19 on 6 August 2009 in the gross sum of £4.2m.  This amounted to an application for a net sum of £207k.  By reference to clause 4.10.1 of the JCT conditions JFC contended that the final date for the payment of that sum was 27 August 2009, i.e., 21 days later.  JFC argued that in accordance with Clause 4.10.3, the written notice of payment was due by 11 August and that, pursuant to clause 4.10.4, a withholding notice had to be served five days before 27 August, namely by 22 August 2009.  On 25 August 2009 Fenice issued what purported to be a certificate for payment and a withholding notice.  As a result no payment was made to JFC.  JFC argued that on a proper construction of the contract the withholding notice was issued out of time.  Fenice argued that the certificate and withholding notice had been issued in accordance with the Employer’s Requirements.

The dispute was referred to adjudication and the adjudicator decided that JFC’s construction of the contract was correct.  He ordered Fenice to pay JFC £177k.  Fenice paid only £12k and commenced proceedings for declarations upholding their interpretation of the contract.  The following day JFC issued a claim and application for the adjudicator’s award to be summarily enforced.

The Court was asked to decide the following issues:

  • What was the relationship between the interim payment provisions of the JCT and the Employer’s Requirements?
  • In the event of a conflict, which of the contractual documents took precedence?
  • Did the Employer’s Requirements comply with the Construction Act?
  • What is the proper course to be adopted by a party who has been required to pay a sum of money by an adjudicator but who has a bona fide point of law to raise in connection with that decision?


The Court found:

  • There was an irreconcilable conflict between the JCT Terms and the Employer’s Requirements.  However, the hierarchy clause (Clause 1.3 of the JCT Terms) meant that the JCT Terms took precedence over the Employer’s’ Requirements.
  • The Court dismissed Fenice’s argument that the Employer’s Requirements reflected the will of the parties and therefore should be given precedence over the JCT Terms, such that Clause 1.3 should be discounted.  The Court could not simply ignore an agreed hierarchy clause simply because it was inconvenient to the commercial interests of one of the parties.
  • In the light of the Court’s conclusions regarding the primacy of the JCT Terms, it was unnecessary to consider the issue of whether or not the payment scheme in the Employer’s Requirements complied with the Construction Act.  As it happened, the Employer’s Requirements did not comply with the Construction Act because they did not state the intervals at which or the circumstances in which payments became due.  Accordingly, if it had fallen to be decided, the Court would have struck down the scheme in the Employer’s Requirement’s and the relevant dates for issue of a withholding notice would either have reverted to those in the JCT Terms or would have been implied by reference to the Scheme for Construction Contracts.  In both scenarios the purported withholding notice issued by Fenice would have been out of time.
  • A losing party who makes a challenge to an adjudicator’s decision by issuing proceedings for a declaration as to the interpretation of the contract must, in the ordinary case, in the meantime pay the sum found by the adjudicator to be due.  Fenice had therefore been wrong in not paying out on the adjudicator’s award and waiting to see the result of its application for declaratory relief.   However, the Court would not order Fenice to pay interest on the award at the punitive rate allowed by the Late Payment of Commercial Debts (Interest) Act 1998, as JFC had made no such claim in the original adjudication, and it would be wrong to introduce a claim at the last minute and without notice.  But costs would be ordered against Fenice on the indemnity basis in relation to the enforcement proceedings that JFC had brought against it. 

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes


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