Macfarlanes guides Grove Developments to success in Court of Appeal judgement in periodic payments case

Earlier today, the Court of Appeal issued its judgment in the case of Grove Developments Limited v Balfour Beatty Regional Construction Ltd.

For the first time, the Court of Appeal has considered whether irregular periodic payments which do not cover the whole of the works satisfy the statutory payment requirements of the Housing Grants, Construction and Regeneration Act 1996 (as amended) (the “Construction Act”).  The decision, therefore, provides important guidance for employers and contractors, and those advising on or administering the terms of building contracts containing periodic payment provisions.

The Court of Appeal upheld the first instance decision of the Technology and Construction Court (“TCC”) and dismissed the appeal brought by the contractor, Balfour Beatty Regional Construction Ltd.

Macfarlanes acted for the successful employer, Grove Developments Limited.

Key points

• The Construction Act does not require employers and contractors to agree a regime of interim payments covering the whole of the work which the contractor performs. A payment regime comprising monthly payments until the originally anticipated date of practical completion, therefore, complied with the Construction Act. This means that the contractor is not entitled to any interim payments after the originally anticipated date of practical completion, regardless of whether or not it is responsible for the substantial delay in the completion of the works.
• The Construction Act allows parties to agree among themselves the intervals between interim payments and the amounts of interim payments. However, a payment regime consisting of one interim payment of an insignificant amount would probably not comply with the Construction Act as it would constitute a “cynical device” designed to undermine the aims of the Construction Act.
• Where wording in a contract is clear and unambiguous, the court will not save a party from a bad bargain. The court will give the words their natural meaning and will not consider whether the words are consistent with commercial common sense.

Doug Wass, the construction litigation partner who led the Macfarlanes team, comments: “This is a significant decision which shows that the courts are not going to use the Construction Act to save parties from terms which they have freely entered into and later consider result in a bad bargain.”

Litigation solicitor Ed Llewelyn-Evans also advised on this matter.