In Henia Investments v Beck, the Court had to consider whether:
- Beck's application for payment was valid and effective
- Henia served an effective Pay Less Notice
- Henia was entitled to levy LADs even though the Contract Administrator had not yet determined Beck's EOT claim.
The decision turned on the precise facts of the case, but the Court emphasised that a payee's application for payment must be free from any ambiguity. This is because in the absence of a Payment Notice (or Certificate) the application for payment would become the "default notice".
The relevant contract contained detailed payment provisions and the dates by which applications for payment should be submitted. Beck had not complied with the contract in terms of the timing of the application for payment by reference to the relevant due date. The Court therefore held that it was not an effective application for payment.
As a result, the Court did not need to consider whether Henia's Pay Less Notice was valid and effective, but found that providing the notice set out the sum the payer considered to be due and the basis upon which the sum had been calculated, it would be effective in challenging an application for payment.
In other words, if a payer wishes to withhold sums from a payee (i.e. by levying LADs or abating sums due to defects) or seek to impose its own valuation of the works, it must serve a valid Pay Less Notice. If not, the payer will be assumed to have accepted the payee's valuation which must then be paid in full (as discussed in previous editions).
Finally, the Court found that, on the facts, Henia was entitled to levy LADs even though Beck's EOT application had not been determined by the Contract Administrator. This was because the requirement of the Contract Administrator to determine the EOT claim was not a condition precedent to the recovery of LADs. A non-completion certificate had been issued as had a notice of intention to levy LADs. This was all that was required, however unfair that might be seen.
Of course, the deduction of LADs may subsequently be adjusted by agreement, by the determination of the EOT claim, or following a further dispute resolution process.
COMMENT: This is yet another case which demonstrates the importance of complying with the terms of the contract to the letter in order to ensure that the payment mechanism operates correctly.
