Adjudication
Maxi Construction Management Limited v Mortons Rolls Limited (7^th August 2001) Crt of Session

© Daniel Atkinson 2001 22 September 2001

In Maxi Construction Management Limited v Mortons Rolls Limited (7^th August 2001) the main issue was whether Morton was required to pay Maxi the amount stated in it Interim Valuation No 10 on a project for the construction of Great Western Retail park in Glasgow. The form of contract was the JCT Scottish Building Contract with Contractor’s Design 1998. Morton had not issued a notice of the amount due nor a notice of withholding. If Interim valuation No 10 was a proper application for payment, then Clause 30.5 applied and Maxi was entitled to payment of the amount applied for in Valuation No 10.

There was a dispute on the terms of the contract and particularly whether Morton’s proposed amendments to Clause 30, which regulated the making of interim payments, were incorporated in the contract. It was held that Clause 30 was indeed amended.

Maxi’s main argument was that the amendments to Clause 30 did not comply with the requirements of Section 110 and 111 of the Housing Grants Construction and Regeneration Act 1996 and it was therefore necessary to look to the provisions of the Scheme. The basis for this submission was that there was an inconsistency between amended Clauses 30.3.3 and 30.3.6. The provisions were irreconcilable because Clause 30.3.3 provided for payment within 28 days of delivery of an Application for Payment whereas Clause 30.3.6 stated 14 days. Accordingly the provisions did not comply with Section 110(1)(a). It was also argued that the amended version of Clause 30 had no provision complying with Section 110(2) and no provision for the giving of such a notice as contemplated by Section 111(1). Accordingly Maxi said, the Scheme applied and the due date for payment was seven days from the making of a claim from Maxi. Maxi stated that Valuation No 10 constituted a "claim by the payee" as set out in paragraph 12 of the Scheme. By reason of Clause 30.3.5 and in the absence of notices form Morton, Maxi was entitled to payment of the amount applied for.

Morton relied on a narrow defence. It was accepted that Morton had not given the required notices. It was accepted that because of the conflict between Clause 30.3.3 (as amended) and Clause 30.3.6, that there was no adequate mechanism for determining when payments became due under the contract and no operable provision as to the final date for payment. It was accepted that there were no provisions for the service of Section 110(2) and Section 111(1) notices. In those respects, it was accepted that the provisions of the Scheme had to prevail. Morton’s main argument was that Valuation No 10 was not a "claim by the payee" within the meaning of paragraph 12 of the Scheme. Interim Valuation No 10 with its covering letter made it plain that what was sought was not yet payment, but rather valuation and certification. The covering letter included the following paragraph:

"We, therefore, formally request that this is valued and certified in accordance with the terms of the contract."

The Employer’s Requirements at paragraph 2.5.20 imposed the requirement of agreement of the amount of each valuation between Maxi and the Employer’s Agent before submission of Maxi’s applications. It was argued that this provision reinforced the view that Interim Valuation No 10 was concerned with the pre-application stage of seeking agreement on the valuation, and did not constitute a claim for payment.

In view of the common ground that if the proposed amendments were incorporated in the Contract that the Scheme applied and the finding that the proposed amendments had been incorporated in the Contract, the only issue to be determined was whether Morton’s Interim Valuation No. 10 was to be regarded as a "claim by the payee" within the meaning of paragraph 12 of the Scheme.

Lord Macfadyen held that the requirements of paragraph 2.5.20 were inconsistent with the requirements of section 110(1)(a). A requirement that a valuation be agreed by the Employer's Agent before a claim for payment can be made was not necessarily incompatible with Section 110(1)(a) provided a timetable for the process of agreement, and a means of resolving a failure to reach agreement were provided. But paragraph 2.5.20 made no such provision. Failure on the part of the Employer’s Agent to agree a valuation could hold up the making of a claim for payment indefinitely. It was held that this meant that the contract did not provide an adequate mechanism for determining when payments became due under the contract. The absence of a timetable and of a means for resolving deadlock has the effect that paragraph 2.5.20 rendered inadequate the machinery for determining when payments were due. Lord Macfadyen considered that if Maxi had presented a claim for payment as such, without first obtaining the agreement of the Employer’s Agent to their valuation, they would have been well-placed to argue that that was, despite paragraph 2.5.20, a valid claim for payment. But it was held that this was not what they in fact did.

Lord Macfadyen held that the contract made a clear distinction between two procedural stages, namely (i) the agreement of the valuation and (ii) the subsequent application for payment of the sum agreed to be due. Paragraph 2.5.20 of the Employer's Requirements required the amount of each valuation be agreed between the Maxi and the Employer’s Agent before submission of Maxi’s applications for payment. It was necessary to read the Interim Valuation No 10 and the covering letter with it. It was held that it was clear from the terms of the covering letter that Valuation No. 10 was not intended by Maxi, when it was submitted, to operate as a claim for payment. The terms of the covering letter were somewhat inappropriate, in that they made reference to valuation and certification, although the contract made no provision for certification. What was clear was that in submitting Valuation No 10 Maxi was not asking Morton there and then to make payment of the sum brought out in the valuation, but were on the contrary were inviting the Employer’s Agent to agree the valuation as contemplated in paragraph 2.5.20 of the Employers' Requirements. Maxi made no attempt, at the time when Interim Valuation No. 10 was presented, to argue that paragraph 2.5.20 was invalid and that they were entitled to claim payment on the basis of their own valuation without the agreement of the Employer’s Agent. Instead Maxi submitted Interim Valuation No. 10 under cover of a request for agreement of their valuation in terms of paragraph 2.5.20. It was held that in these circumstances, the Employer’s Agent was entitled to take Interim Valuation No. 10 and its covering letter at face value, and treat them as constituting no more than a request for agreement of the valuation, as a preliminary to the subsequent making of a claim for payment. It was held that it would be quite unfair to Morton, on the basis of an argument as to the invalidity of paragraph 2.5.20 presented ex postfacto, to treat Interim Valuation No. 10 as a "claim for payment" when it was not presented at the time as such. That was sufficient to dispose of the matter and allow the action to be dismissed.

Lord Macfadyen helpfully considered it was appropriate to consider whether Interim Valuation No 10 could be regarded as a "claim by the payee" in any event within the meaning of paragraph 12 of the Scheme. Paragraph 12 requires the "claim by the payee" to specify the amount of any payment or payments which the payee considered were due, specifying to what the payments relate and the basis on which they are calculated. Morton argued that there were items which were stated to be additional or substituted work which had to be valued under Clause 12.5 which required valuation based on work of similar character or if not fair valuation. It was argued that Interim Valuation No 10 contained nothing to indicate how the sums sought were based on the approach to valuation stipulated in Clause 12.5. It was argued that there was no explanation of the basis of the sum stated for extension of time costs associated with formal instructions to suspend site operations.

Lord Macfadyen accepted that it was appropriate to look at Interim Valuation No. 10 in the context of the other applications for payment that had gone before. It was not appropriate to demand of an application for an interim payment that it set out in full detail the basis of calculation of items already paid for under earlier applications. It was stated obiter however that paragraph 12 required specification of the basis of calculation of the new matter included in the application in question. In this case many of the items in Interim Valuation No. 10 could not be regarded as specifying the basis on which they are calculated. On that basis it was stated obiter that Interim Valuation No. 10 could not be regarded as a "claim by the payee" in a form which satisfied paragraph 12 of the Scheme.

Finally, Lord Macfadyen considered whether the Interim valuation No 10 was sufficient to comply with the requirements of the unamended Clause 30 of the Contract. Clause 2.5.20 required Maxi to provide at each valuation date a detailed build-up of the values of the work executed derived from the Contract Sum Analysis and from supplementary priced schedules and priced schedules of materials on site. In view of the earlier findings it was sufficient for Lord Macfadyen to indicate that Interim valuation No 10 failed to comply with the requirement stated in paragraph 2.5.20 of the Employer's Requirements that an application for interim payment be accompanied by a detailed build-up of the values of the work executed.