MILESTONE PAYMENTS - BENNETT (CONSTRUCTION) LTD V CMC MBS LTD [2019] EWCA CIV 1515
In the recent decision of Bennett (Construction) Ltd v CMC MBS Ltd [2019] EWCA Civ 1515 (“Bennett v CMC”), the England and Wales Court of Appeal (the “EWCA”) addressed, inter alia, the issue of how the milestone of “… on sign-off” be interpreted in a situation where the interim payment arrangements in the JCT standard form were replaced by the parties.
Summary. In brief, the main contractor, Bennett (Construction) Limited (“Bennett”), had entered into a contract with CIMC MBS Limited (formerly Verbus Systems Limited) (“Verbus”) for the design, supply and installation of 78 prefabricated modular bedroom units for a proposed new hotel at Woolwich, in East London.
The contractual terms incorporated the standard JCT contract. However, the parties replaced the interim payments provision in the JCT in their entirety with what the parties called ‘Milestones’, as set out below:
“Milestone 1. "20% deposit payable on execution of contract;"
Milestone 2. "30% on sign-off of prototype room by Park Inn/Key
Homes/Bennett in China;"
Milestone 3. "30% on sign-off of all snagging items by Park
Inn/Key Homes/Bennett in China;"
Milestone 4. "10% on sign-off of units in Southampton;"
Milestone 5. "10% on completion of installation and any snagging".”
It suffices to state that as summarised by Coulson LJ at the beginning of the judgment:
“2. The present appeal arises out of the interplay between the contract terms agreed between the parties and the requirements in the Act as to an adequate payment mechanism. Two particular issues arise. The first is whether a regime requiring payment of a percentage of the contract sum on "sign-off" of a particular stage of the works complies with the Act; the second, if it does not, concerns the mechanism by which the Act (and the Scheme for Construction Contracts, which it introduced) is incorporated into the contract in order to 'save' the bargain which the parties made.”
According to Verbus, “sign-off” envisaged the actual signing off of the works, and a deliberate decision not to sign-off or to prevent signing off would circumvent the payment obligation. In addition, Verbus contended that there was no clear criteria for “sign-off”, as it envisaged involvement of third parties ([15] Bennett v CMC).
Not surprisingly, Bennett disagreed. Bennett contended that “sign-off” simply meant the date when on which completion of the relevant stage was achieved in accordance with contractual requirements, and that there was no confusion ([16] Bennett v CMC).
Milestone payments. Coulson LJ first summarised certain key principles concerning milestone payments at [22] – [23] Bennett v CMC, which we set out below:
“22. The precise trigger for payment will depend upon the terms of the contract. If, say, an architect's certificate confirming completion of a stage of the work is a condition precedent of payment, then the employer is entitled not to pay if there is no such certificate (see Wallace v Brandon & Byshottles UDC (1903), Hudson's Building Contracts, 4th edition, volume 2, paragraph 362). Even then, the contractor may have a cause of action for the sum which ought to have been certified: see Henry Boot Construction Limited v Alstom Combined Cycles Ltd [2005] 1 WLR 3850 at 3861.
23. Moreover, if the employer prevents the issue of a certificate, which should otherwise have been issued, he cannot rely on its absence, because "no person can take advantage of the non-fulfilment of a condition the performance of which has been hindered by himself": see Blackburn J in Roberts v Bury Commissioners [1870] LR5CP 310 at 326 and, more recently, Waddan Hotel Limited v MAN Enterprise SAL (Offshore) [2015] BLR 478.”
It is important to note that similar observations have been made by the Court of Appeal in the important decision of Far East Square Pte Ltd v Yau Lee Construction (Singapore) Pte Ltd [2019] SGCA 36 at [40], where the Court of Appeal highlighted that a distinction should be drawn between a situation where an architect improperly withheld a certificate, versus a situation where the architect is unable to issue a certificate.
s. 110 and the Scheme for Construction Contracts. As Coulson LJ made clear, the key provision in issue before the EWCA in Bennett v CMC was s. 110 of the Housing Grants, Construction and Regeneration Act 1996, as amended by the Local Democracy, Economic Development and Construction Act 2009. As set out in [17] Bennett v CMC, the relevant portions of the provision (“s. 110 HGCRA”) state as follows:
“110.— Dates for payment.
(1) Every construction contract shall—
(a) provide an adequate mechanism for determining what payments become due under the contract, and when, and
(b) provide for a final date for payment in relation to any sum which becomes due. The parties are free to agree how long the period is to be between the date on which a sum becomes due and the final date for payment…”
Coulson LJ also referred to two English decisions on s. 110 HGCRA at [24] – [25] Bennett v CMC:
1. Maxi Construction Management Limited v Morton Rolls Limited [2001] CILL 1784-1787 (“Maxi Construction”), where the contract was found to be non-compliant with s. 110 HGCRA as the contract required agreement of the contractor’s valuation by the employer’s agent before submission to the employer for payment, and the contract failed to provide for a time-table for agreement and a means of resolving a failure to reach agreement.
2. Alstom Signalling Limited v Jarvis Facilities Limited (No. 2) [2004] EWHC 1285 (TCC) (“Alstom Signalling”), where the contract was found to be sufficiently certain even though it referred to the “up-stream” contract, as “… the contract was clear that payment would be made within seven days of [the up-stream] certificate.”
On the facts. On the facts of Bennett v CMC, Coulson LJ found that “sign-off” was a “generic reference to the satisfactory completion of a particular stage, to be assessed objectively” ([27] read with [35] Bennett v CMC).
Coulson LJ found that the contract did not seek to tie in the “sign-off” to a condition precedent such as a certificate or a sign-off, and that this supported Bennett’s construction ([36] Bennett v CMC).
Coulson LJ stated that even if the contract did envisage actual completion or certification of a sign-off document, it would have made no difference. This is because once Verbus completed the prototype, “… If it was in a state where it could be signed off, Bennett could not avoid their liability to pay Milestone 2 simply because the document had not in fact been signed off: see the discussion in paragraph 23 above.” ([37] Bennett v CMC).
Coulson LJ also stated that the involvement of third parties in the sign-off process did not detract from the “only applicable criterion, namely completion of the prototype or the units in accordance with the contract”, as wrongful interference cannot prevent proper payment ([40] Bennett v CMC).
Takeaway. While there is no “equivalent” provision to s. 110 HGCRA under Singapore’s Building and Construction Industry Security of Payment Act (“SOPA”), it is likely that Coulson LJ’s observations on how milestone payments operate would apply with equal force in Singapore.
Bennett v CMC is therefore important as it makes clear (once again) that if the achievement of a milestone is dependent on an act of the employer/main contractor, then the employer/main contractor cannot wrongfully refuse to act.
We end by observing that under SOPA, situations like Maxi Construction and Alstom Signalling may potentially pose difficulties, as there may be disputes whether the contract contains any provision(s) to specifying when the payment claim/response is to be served. However, it is beyond the scope of this article to expand on this issue, save to observe that in general, it would be prudent to ensure that any time-lines are specified clearly in the contract.
Tags: Building and construction; Milestone payments; Wrongful interference with payment
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