The recent High Court decision regarding the timing of a contractor’s claim is a point to note. The court decided that a contractor’s claim was out of time since the right to payment surfaced once the works were completed and not on the date that the payment was due.
The decision causes controversy within the industry as it carries significant implications for both contractors and employers in bringing claims within time.
The case of Hirst v Dunbar  EWHC 41 (TCC) involved the construction of a combination of houses and flats at a site in Bradford. The claimants conducted work between 2011 and 2012. However, there was no written agreement for the works. The claimants argued that an oral contract existed and under that contract, the defendants were to pay a reasonable amount for the works conducted.
This was denied by the defendants as they argued the claimant conducted the works at their own risk as they were intending to purchase the site. Further, the defendants asserted that, even if there had been a written contract in place, the claimants were out of time as the works were completed in the year 2012, yet they brought their claim in the year 2019. As many readers will be aware, this exceeds the six-year limitation period in which a legal claim must be brought.
The judge studied the evidence and concluded that in the absence of a written agreement between the parties, the claimants were not eligible for any form of payment.
The main point to note is the judge stated that if a written contract had been in place, the payment provision in paragraph 6 of the Scheme for Construction Contracts (“the Scheme”) would have been relevant to the case. The Scheme for Construction Contracts states that payment of the contract price becomes ‘due’ on the later of either the expiry of 30 days following the completion of the work: or the ‘making of the claim by the payee’.
The matter before the judge was: when did the limitation period clock start? Was it in 2012 when the works were completed (as the defendant claims) or in the alternative in 2014 when the payment notice under the scheme should have been issued (as the claimant asserted)?
The legal starting point is that payment for work or services normally occurs once the contracted work has been completed.
The starting point mentioned above can obviously be amended if the parties both agree. It is important to note that the judge decided, in this case, that the Scheme could not change the original starting point. The judge therefore, regarded that the terms of the Scheme relating to only the ‘process of billing and payment’ – not the right to whether a payment should be made.
Under the Scheme, a contractor’s right to payments begins on the completion date. Completion, therefore, sets out the date for when the limitation period begins, not the ‘due’ or final date of payment.
It was noted that the situation would differ with contracts in which an independent certifier supplies a valuation or payment certificate. In such cases, parties are unaware of the amount owed until they receive the certificate, implying that no right to payment can occur up until the certificate is issued.
However, under the Scheme – this is not the case as the application for the payment and payment certificate are released by the parties involved, not an independent certifier.
This decision is vital, as it determines when time starts to run in respect of claims for payment under construction contracts.
Within the industry, it could be seen as unusual that a claim for payment can occur before the date on which a payment is expected to be made. This decision has been made on the basis of many previously reported cases.
Although the decision involved paragraph 6 of the payment terms of the Scheme, the same reasoning appears to apply to other payment terms within the industry, especially for contract forms where no independent valuation/certification is present.
The functional impact is that, under similar terms, the time for launching legal claims for payment is usually much earlier than most people expect. The period is likely to run from the date of completion of the works, this could be months, even years, earlier than the date for the final payment under the written contract, the final payment is typically not due until after the expiry of the rectification period and after any defects have been corrected.
Many questions remain unanswered regarding how the judge’s reasoning might apply to the completion of sectional works. It could be argued that the time for opening a sectional claim begins on the completion of the said section rather than the completion of the whole project.
The payment section of the judge’s decision was not strictly binding for future cases, yet it is likely to be considered by judges and adjudicators when considering cases with similar facts. It has been noted that the judge was heavily influenced by the fact that, under the Scheme provisions, the payment due date was dependent on when the contractor sent out the payment application. This means that the contractor could decide when the limitation period started and therefore when it expired.
The word of caution is, that when calculating the cut-off date for commencing legal proceedings, contractors should assume the earliest date possible upon which a claim may arise. Given the reasoning in this case, employers also should examine any contractor’s claims in detail to assess whether they are out of time, given the reasoning in this case.
Please note. The information provided on this website is NOT LEGAL ADVICE and is for information purposes only. No action or inaction should be taken due to this information, or any reliance placed upon this information. Please note where legal advice is required this should be obtained by an appropriate qualified legal practice and no information provided within this website should form the basis of any legal, contract or commercial decision. K J Taylor Consulting Ltd. are commercial quantity surveyors and not construction legal advisors.