Primary Health Remuera Ltd v Avoca Residential Construction Ltd
[2004] NZCA 220
•10 September 2004
IN THE COURT OF APPEAL OF NEW ZEALAND
CA44/04
BETWEENPRIMARY HEALTH REMUERA LIMITED
Appellant
ANDAVOCA RESIDENTIAL CONSTRUCTION LIMITED
Respondent
Hearing:2 June 2004
Coram:Anderson P
Chambers J
O'Regan JAppearances: H P Holland for Appellant
N J Carter for Respondent
Judgment:10 September 2004
JUDGMENT OF THE COURT DELIVERED BY O’REGAN J
[1] This is an appeal against a decision of Associate Judge Lang in which he dismissed an application by the appellant, Primary Health Remuera Limited, for an order setting aside a statutory demand served on Primary Health by the respondent, Avoca Residential Construction Limited, under s290(4) Companies Act 1993. The Judge also made an order under s291(1)(a) Companies Act requiring Primary Health to pay to Avoca the sum of $215,158.75 within 14 days.
Facts
[2] Primary Health is a property developer. Avoca is a construction company. Primary Health is the developer of a substantial town house complex in Remuera Road, Auckland. It called for tenders for the construction of the town houses on the basis of specifications produced by its architects, Archimedia Limited. The specifications incorporated the New Zealand Institute of Architects (NZIA) Standard Conditions of Contract SCC1 2000. Avoca provided an initial tender on 12 November 2001. After correspondence between Avoca and Archimedia, Avoca then submitted a revised tender on 5 December 2001, which was accepted by Primary Health. However, a formal contract for the construction of the town houses was never signed.
[3] The Judge found that the revised tender, the specifications, incorporating the NZIA conditions and the relevant correspondence between Avoca, Archimedia and Primary Health together provided the basis of the contractual relationship between Primary Health and Avoca. (We will refer to this arrangement as the Contract.) There was, however, a dispute as to whether Avoca agreed that liquidated damages for delayed completion would be in the amount of $2,500 per day. We will revert to this later.
[4] As is customary in building contracts of this kind, there was provision for progress payments to be made during the construction period. The provisions governing such payments were rr 73-85 of the NZIA conditions. The text of the relevant rules is set out in an appendix to this judgment. In summary, these provisions provide for the following regime:
(a) Under r 73, the Contractor (Avoca) is entitled to apply to the Architect (for the purposes of this aspect of the contract the Architect was Rider Hunt Auckland Limited) for a progress payment certificate;
(b) The Architect must assess the Contractor’s claim according to certain requirements set out in r 74. In particular, the Architect must deduct from the amount it assesses any retentions allowed under r 79 and any liquidated damages that have become payable under r 72;
(c) Under r 75, the Architect is required to certify the amount it assesses as the Contractor’s claim, less the deductions referred to above, and give a copy of the progress payment certificate to the Principal (Primary Health);
(d) Under r 76, the Principal must pay the amount certified by the Architect within seven working days of the date of the certificate. If the Principal fails to do so, then there is provision for default interest to be paid;
(e) Rule 85 of the NZIA conditions gives the Contractor the right to suspend work if the Principal fails to pay an amount which is owed by the Principal to the Contractor under the contract. The Contractor must give five working days notice before suspending work.
[5] In the present case, certificates 1-14 were paid, but problems arose in May 2003 because Primary Health failed to pay the amount certified in Certificate 15, which had been issued on 7 April 2003. The amount certified was $215,178.75 (including GST).
[6] Avoca then issued a notice advising Primary Health that it intended to suspend work under r 85. A meeting took place on 6 May 2003 in an attempt to resolve the impasse. Representatives of Avoca and Primary Health were present, as was Mr Russell of Rider Hunt. An agreement was reached. We will call this the 6 May agreement. Mr Neil, a director of Avoca, wrote to Mr Cook of Primary Health and Mr Russell on 26 May 2003 and set out a summary of what was agreed at the 6 May meeting. In that letter, he described the agreement reached at the meeting as follows:
The agreed procedure is as follows:
a) Max Russell (Rider Hunt) will assess all issues in accordance with the contract and formalise all rulings.
b) Max Russell (Rider Hunt) has the authority to request any further details be that written or verbal from any of the contracted parties to assist in any clarifications needed to formalise the final rulings.
c) Both Avoca Residential Construction Ltd and Primary Health Remuera Ltd will accept Max Russell’s (Rider Hunt) ruling.
d) Avoca are to proceed in completing and contract works (even though no payment of the March claim has been received, the stop work notice is to remain active but not enforced) through to practical completion.
e) Once settlements commence and funds become available (currently 1-19 settled) Primary Health Remuera Ltd will make all outstanding payments currently overdue and further payments as ruled by Max Russell (Rider Hunt) including all and any retentions.
f) It was confirmed by Chris Cook that there is sufficient funds in the project to make payment on the outstanding certificates and any final ruling certificates including all retentions once settlements commence.
g) Units 11 and 12 effected by fire will be assigned to Primary Health Remuera Ltd for final completion. Max Russell (Rider Hunt) to undertake assignments notice for signing by both parties.
I believe the above fully represents our understanding of the agreement reached at our meeting of 6th May 2003.
We now look forward to completion of the project along with payment of the outstanding March and April claims together with further rulings being formalised to conclude this contract.
[7] Mr Cook said in his affidavit (dated 21 August 2003) that he did not agree that Mr Neil’s letter “adequately reflects the degree to which it was essential that any claims certified were to be the subject of adjustment by way of damages for delay” but did not otherwise take issue with the summary contained in the letter. Mr Cook had not disputed the accuracy of the 26 May summary before then. Mr Russell did not take issue with Mr Neil’s letter in his affidavit.
[8] Avoca completed the contract works as agreed. Practical completion occurred in June 2003. However, Primary Health continued to refuse to pay the amount certified under Certificate 15. It also refused to pay for any further work. In essence Primary Health argues that the project’s completion was delayed by Avoca and that the liquidated damages provision applies. Primary Health also alleges certain defects for which it says Avoca is liable. Avoca does not accept Primary Health’s position. For the purposes of this appeal it is not necessary to go into the detail about those matters, other than to say that, on Primary Health’s version of events, the amount which is owed to it by Avoca exceeds the amount which Primary Health says it owes to Avoca, and is considerably more than the amount of Certificate 15, namely $215,178.25.
[9] The amount which Avoca says is owed to it by Primary Health is much greater than the amount for which Certificate 15 was issued. In fact, Avoca claims that the total amount owed to it by Primary Health is $473,138 plus GST, which is the amount which Mr Russell of Rider Hunt ruled as due to Avoca in the course of the dispute resolution process on which the parties embarked in accordance with the 6 May agreement. Mr Russell confirmed in evidence that he had said in a letter of 4 July 2003 to Avoca that this amount was outstanding. But he said that he had not issued a certificate for that sum. Rather, he said he had indicated he intended to certify for that sum, subject to the “serious issues that [Primary Health] has for delays in completion”. He did not explain why he has not certified any amounts since then. Avoca says that Primary Health was bound under the 6 May agreement to pay the amounts owed to Avoca once it received the settlement payment for units in the townhouse complex that had been sold.
[10] The dispute about the date for practical completion of the project has not been resolved. Mr Russell asked Archimedia to make a recommendation on Avoca’s claims for extensions. Archimedia wrote to Mr Russell on 1 August 2003 saying it recommended no further extensions be granted, so the practical completion date would remain as 11 December 2002. But Mr Russell has not made a formal ruling or issued a certificate in relation to that recommendation.
[11] On 7 August 2003, Avoca served a statutory demand on Primary Health. The form of this document was somewhat unusual. There is a demand for payment of $532,280.25 (i.e. $473,138 plus GST), but this is followed by an alternative demand for $215,178.75 (being the amount payable under Certificate 15). In our view, a payment of the lesser figure would have satisfied the demand, so the practical position is that the demand should be seen as a demand for payment of the amount owing under Certificate 15.
[12] In any event, as already noted, the amount which Primary Health says is owed to it by Avoca (on Primary Health’s interpretation of the liquidated damages obligations) exceeds the higher amount in the demand as well.
[13] Primary Health applied to the High Court for an order setting aside Avoca’s statutory demand.
[14] On 8 August 2003, Avoca’s solicitors wrote to Primary Health re-activating the suspension of work which had been made “active but not enforced” after the 6 May meeting. Avoca has not therefore undertaken maintenance work that would otherwise be required under the contract.
The High Court proceeding
[15] When the matter became before Associate Judge Lang on 2 February 2004, he issued an oral judgment saying that he had reached the view that the statutory demand should not be set aside unless the lower amount referred to in the statutory demand was paid. However he accepted that, because there was a dispute as to the outcome of the settlement meeting on 6 May 2003, and also given that Avoca might ultimately be found to owe money to Primary Health by way of liquidated damages, there needed to be some measure taken to protect Primary Health’s position in the interim.
[16] The Judge therefore ordered that the proceedings be adjourned to 20 February 2004. He said that he would, at that time, make the order setting aside the statutory demand, so long as Primary Health paid $215,178.75 to Avoca and Avoca provided Primary Health with a bond securing repayment of that sum if Avoca was ultimately found to be indebted to Primary Health for an amount up to $215,178.75. He said he was not prepared to make any order that the higher amount referred to in the statutory demand was payable, and that the dispute about the difference between the lower amount and the higher amount would need to be resolved by agreement, arbitration or litigation.
[17] Avoca then made arrangements to provide the bond, but when the matter came back before Associate Judge Lang on 20 February 2004, Primary Health told the Judge that it did not propose to make any payment. He then dismissed the application for an order setting aside the statutory demand and made an order under s291(1)(a) of the Companies Act that Primary Health pay $215,158.75 to Avoca within 14 days. He said that if Primary Health defaulted, Avoca would be entitled to file proceedings seeking an order to place Primary Health in liquidation.
[18] The Judge issued a judgment on 26 February 2004 which set out his reasons for the decisions he made on 20 February 2004.
[19] Primary Health then appealed to this Court.
Section 290
[20] The application to set aside the statutory demand was made under s290 of the Companies Act. Under s290(4), the Court may grant an application to set aside a statutory demand if satisfied that:
(a)There is a substantial dispute whether or not the debt is owing or is due; or
(b) The company appears to have a counterclaim, set-off or cross demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross demand is less than the prescribed amount; or
(c) The demand ought to be set aside on other grounds.
[21] In the present case Primary Health relies on both (a) and (b), claiming that there is a substantial dispute about whether it owes the demanded amount to Avoca, and also claiming that it has a set-off exceeding the amount demanded. Section 290(4) is expressed in permissive rather than mandatory language: the Court “may” set aside the demand if satisfied that any of the grounds set out in s290(4) applies.
The Judge’s reasons
[22] The Judge determined that there was a genuine dispute as to whether Primary Health was liable for $473,138 plus GST. This involved the consideration of the dispute resolution process the parties had engaged in during June and July 2003, which culminated in a letter dated 4 July 2003 from Mr Russell of Rider Hunt to Avoca to which we referred in para [9] above.
[23] In relation to the claim for $215,178.75, the Judge determined that r 76 of the NZIA conditions obliged Avoca to pay the amount for which Certificate 15 was issued and there was accordingly no genuine and substantial dispute in respect of that amount.
[24] The Judge then turned to the contention that Primary Health had an arguable counterclaim or cross-demand exceeding the debt owed by it.
[25] He dealt with this issue in three stages. First, he considered the evidence relating to the formation of the Contract and determined that it was at least arguable that the Contract contained a provision requiring Avoca to pay liquidated damages for late completion at $2,500 plus GST per day.
[26] Secondly, he then considered whether it was arguable that liquidated damages would be payable by Avoca to Primary Health. This involved an extensive review of the evidence relating to the conduct of the dispute between the parties as to whether the time for completion of the project had been extended beyond 11 December 2002. Primary Health argued that 11 December 2002 was the date for practical completion of the contract, while Avoca argued that it was 17 July 2003. The Judge reviewed that evidence and concluded, “with considerable reservations” that it was arguable that Primary Health had a potential right to claim liquidated damages from 11 December 2002. He also concluded, but again with some reservation, that that was sufficient to establish jurisdiction under s290(4)(b). He said his reservation stemmed from the fact that quantification of the counterclaim was contingent on resolution of the dispute regarding Avoca’s claims for extensions of the time for practical completion.
[27] The Judge noted that in Alfex Doors and Windows Limited v Alutech Windows and Doors Limited (2001) 16 PRNZ 963, this Court held that an unquantified claim for liquidated damages did not meet the generally accepted threshold of “a fairly arguable basis”. However he distinguished the present case because Primary Heath’s liquidated damages claim had the support of the Architect’s ruling in fixing the starting point for its claim for liquidated damages. However, he saw this aspect of the matter as highly relevant to the manner in which the Court should exercise its residual discretion under s290(4).
[28] Thirdly, the Judge turned to the exercise of the residual discretion. He noted that this Court had said in the Alfex case that, where grounds for setting aside under s290(4) are clearly made out, it would be a rare case in which, in the exercise of the residual discretion, the application is refused.
[29] The Judge said that two factors had particular relevance to the exercise of the discretion. These were:
(a)The nature of the arrangement the parties had reached in relation to the issue of progress payments;
(b) The basis upon which Avoca agreed to continue work in the 6 May agreement.
[30] As to the first issue, the Judge considered three Australian authorities, Blue Chip Pty Limited v Concrete Constructions Group Pty Limited (1997) 13 BCL 31, Algons Engineering Pty Limited v Abigroup Contractors Limited (1998) 14 BCL 215 and Triden Contractors Pty Limited v Belvista Pty Limited (1987) 3 BCL 203.
[31] In both Blue Chip and Algons, it was held that the principal under a construction contract was prevented from exercising an equitable set-off for liquidated damages against an amount certified under the terms of the construction contract. In both cases the certification process was similar to that provided for under the NZIA conditions. The Judge said that the NZIA conditions provide for liquidated damages to be taken into account if and when they are deducted by the Architect from his assessment of the Contractor’s claim under r 76.
[32] The Judge also noted that the Contractor had an express right under r 85 to suspend work for non-payment, and it was difficult to see how that could be reconciled with an entitlement on the part of the Principal to withhold payment on the basis of an unquantified claim to liquidated damages. He determined that the mandatory wording of r 76 indicated quite clearly that the Principal was required to pay the amount certified by the Architect without deduction within 7 working days of the date of the certificate, and said that Primary Health had no contractual right to withhold payment on the basis that it had an unquantified claim for liquidated damages. For that reason, he said he was satisfied that, notwithstanding the existence of an arguable counterclaim or cross demand, the Court should nevertheless exercise its discretion not to make an order setting aside the demand.
[33] The Judge then turned to the basis upon which Avoca continued work following the 6 May 2003 meeting. He set out the competing versions of the events, as contained in the affidavits of Mr Taylor of Avoca and Mr Cook of Primary Health. He accepted that it was not generally possible to resolve factual disputes based on affidavit evidence alone. But he determined that the version of events given by the witnesses for Avoca was more likely to be correct for the following reasons:
(a) In the circumstances in which it found itself, Avoca’s decision to continue work made no commercial sense unless it had agreement that Certificate 15 would be paid. That was particularly so because, once the work was completed, settlements of the pre-sold units would occur, which would free up money to meet the payment obligation.
(b) There was a written record of the meeting in Mr Neil’s letter (see para [6] above). Apparently this was written because Mr Russell of Rider Hunt, who had taken notes at the meeting and was meant to circulate a record of what had been agreed, failed to do so. The Judge said it was clear from Mr Neil’s letter that, once settlements commenced and funds became available, Primary Health would make all outstanding payments currently overdue. He noted that Mr Cook did not take issue with Mr Neil’s letter at the time and no explanation was given by Primary Health to account for this lack of response. The Judge accepted that this record was prepared three weeks after the meeting occurred. He said that, by allowing Avoca to continue work after the letter was received, Mr Cook permitted Avoca to labour under the mistaken belief that it would be paid when he knew that that was not the case. The Judge also noted that Mr Russell, who was present at the meeting, had not referred to it at all in his affidavit. He said this meant that there was an inference available that he had chosen to remain silent because his recollection of events accorded with that of Mr Neil and Mr Taylor.
[34] The Judge concluded that it was probably correct that Mr Cook, a director of Primary Health, agreed at the 6 May 2003 meeting to pay Certificate 15 in full once settlement of the sales of units in the townhouse development commenced, and that Avoca agreed to continue work on the basis of that commitment. He said that Avoca may therefore have an enforceable contractual right to payment of Certificate 15 over and above that given to it by the original contract, and that this provided another reason to exercise the discretion not to set aside the statutory demand.
Arguments for Primary Health
[35] On behalf of Primary Health, Mrs Holland argued that the discretion to set aside should have been exercised in this case, once the Judge had found that there was a fairly arguable basis for a counterclaim set-off or cross demand. She said this was not one of the rare cases in which it was appropriate not to exercise the discretion relying on the Alfex case.
[36] Mrs Holland said that the two matters taken into account by the Court in refusing to exercise the discretion should not have been taken into account.
[37] In respect of the first she said that the Judge was wrong in his interpretation of the provisions in the contract relating to progress payment certificates.
[38] She said that the correct approach to the determination of the right to set-off from amounts certified in progress payments certificates was that set down by the House of Lords in Gilbert-Ash (Malvern) Limited v Modern Engineering (Bristol) Limited [1974] AC 689 and by the High Court in Savory Holdings Limited v Royal Oak Mall Limited [1992] NZLR 12, rather than that taken in the Australian authorities relied on by the Judge.
[39] On the second point, Mrs Holland said that the Judge had wrongly drawn conclusions about the outcome of the 6 May meeting, when matters were in dispute and the only evidence before him was the affidavit evidence. She said the Judge should not have reached the conclusion that Primary Health had agreed to pay the amount referred to in Certificate 15 without deduction at that meeting and should not therefore have taken that factor into account in the exercise of his discretion.
Arguments for Avoca
[40] On behalf of Avoca, Mr Carter said that Associate Judge Lang had correctly applied the Australian authorities. He said that there had been no certification of the liquidated damages claimed by Primary Health, and certification was a mandatory requirement in order to establish a set-off against the amount certified by a Certificate 15. He argued that there was also an estoppel argument that Primary Health had promised to pay the $215,178.75 in consideration for Avoca continuing to complete the contract at the 6 May meeting. He argued that the parties agreed on 6 May that Mr Russell of Rider Hunt would rule on all issues relating to the extension of time but made no ruling and then purported to certify the extended completion date after his ruling issued. Mr Carter argued that the extended completion date was, in fact, at large.
[41] Mr Carter also supported the Judge’s exercise of the discretion not to set aside the demand by reference to the fact that Avoca had provided a bond for repayment of the $215,178.75 (after the 2 February hearing) and because there was no evidence that Primary Health was solvent. He said the indicators were that Primary Health was, in fact, insolvent.
Discretion under s290
[42] Mrs Holland did not dispute that the Judge had a discretion whether or not to order a setting aside of the statutory demand under s290. Rather, she argued that the discretion should be exercised only in rare cases (based on Alfex) and that this was not such a case. We agree that, in general terms, the discretion not to set aside a statutory demand when the necessary jurisdiction to do so is established under s290(4)(a) or (b) will be exercised only in rare cases, when there are strong grounds for doing so.
Discussion
[43] We have come to the conclusion that this matter does not require a decision on the scope of the residual discretion under s290 or whether it was appropriate to exercise the discretion in this case. In our view, the case can be decided on the conventional basis that neither s290(4)(a) nor s290(4)(b) applies.
[44] The focus of the High Court decision and of the submissions of counsel in this Court was on the nature of the obligations under Certificate 15, and the terms of the Contract. But, in our view, that approach did not give sufficient recognition to the fact that the parties agreed to vary the Contract on 6 May.
[45] Although Mr Cook disputed the detail of what was agreed on 6 May, there is no dispute that the obligations of the parties under the Contract were varied in a number of ways. In particular:
(a) Primary Health’s payment obligation was modified. Payments (including that outstanding under Certificate 15) did not need to be made until settlements of the sales of units commenced and funds became available (para (e) of Mr Neil’s letter of 26 May 2004);
(b) The dispute resolution process under the Contract was varied so that all issues were to be decided by Mr Russell (para (a) of Mr Neil’s letter);
(c) The suspension of work by Avoca was “not enforced” so Avoca agreed to finish the project despite non-payment of the sum payable under Certificate 15 (para (d) of Mr Neil’s letter).
[46] In our view, the parties agreed to a new regime on 6 May which modified their respective rights and obligations under the Contract. So a focus on what the Contract itself provided assists only for the purposes of determining the rights and obligations of the parties after the 6 May agreement.
[47] It may have been contemplated by the parties that, before settlements of units occurred, Mr Russell would have made rulings on the disputes between them. However, that has not happened. We were not told why, and it is not relevant for present purposes. But it means that, if the amount certified in Certificate 15 was an “outstanding payment currently overdue” as at 6 May, then Primary Health agreed on 6 May that it would pay that amount once settlements commenced and funds became available. The settlements happened, but payment was not made. So Primary Health is in default. We do not believe there can be any dispute about that.
[48] Mr Cook said the 26 May letter describing the agreement reached on 6 May did not reflect the degree to which it was essential that claims certified were to be subject to the adjustment by way of damages for delay. But there has been no ruling by Mr Russell about damages for delay, and only he could make such a ruling under the 6 May agreement.
[49] Having concluded that there is no substantial dispute that the sum certified in Certificate 15 is owing by Primary Health, we now turn to the question of set-off. In our view, this issue also turns on the 6 May agreement, rather than on the terms of the Contract, because of the new terms agreed on 6 May.
[50] It is clear from the 26 May letter that the parties contemplated that issues relating to damages for delay would be resolved by rulings from Mr Russell. We do not think there is any dispute about that – Mr Cook’s disagreement with the accuracy of the 26 May letter did not touch on this point at all. Mr Russell has not in fact ruled on the delay question, and has not issued any certificates or formal rulings as the 6 May agreement contemplated.
[51] So the position as it was at 6 May still pertains, and Primary Health’s obligation to pay the amount which was then outstanding ($215,158.75) crystallised when settlements of the sale of units occurred. If Mr Russell had made a ruling about damages for delay, Primary Health may have had a right to set off the amount of the damages against the obligation to pay $215,158.75. But he did not. And Primary Health had no counterclaim for damages unless and until the process agreed upon on 6 May was undertaken, and Mr Russell made a ruling to that effect. Until then, it is unknown whether there is a counterclaim and, if so, for how much.
[52] We have also considered whether Primary Health has a cross-demand. In Re A Bankruptcy Notice [1934] 1 Ch 431, Lord Hanworth MR described a cross-demand as follows (at 438):
I turn, therefore, to what to my mind is the wider word, “cross-demand” is only to be interpreted as meaning something which could have been introduced into the action by way of counter-claim, it adds nothing to the word “counter-claim”. “Cross-demand” seems to me to be a word introduced in order to give a wider ambit to the meaning of these claims, something that would not be described, certainly, as a set-off, something that could not have been brought in the action, something that still lies outside a counter-claim, but is of a nature which can be specified and which is of such a nature that it equals or exceeds the amount of the judgment debt. I do not desire to say what “cross-demand” may include, but it is not difficult to say that it does not include a claim of such uncertain nature as appears in these Chancery proceedings.
[53] In the present case, the reasons for finding there is no counterclaim lead also to the conclusion that there is no cross-demand.
[54] In those circumstances, Primary Health cannot establish an arguable case that it appears to have a counterclaim, set-off, or cross-demand. The evidence goes the other way : the 6 May agreement required a process to be conducted to determine whether there was any basis for a set-off or any counterclaim and, in the absence of that process, no set-off or counterclaim appears to exist in relation to the outstanding debt arising from Certificate 15.
[55] In our view, therefore, the application to set aside the demand ought to have been dismissed. In effect, we have reached the same result as Associate Judge Lang, but by a different route.
Section 291
[56] Associate Judge Lang ordered that the debt be paid by Primary Health within a period of 14 days under s291(1). Mrs Holland argued that, having concluded that the application to set aside the demand should be dismissed on a discretionary basis, the Judge did not have power to make an order under s 291(1). As we have concluded that there is no substantial dispute whether or not the debt is owing or due and no appearance of a counterclaim set-off or cross-demand, the issue does not now arise, because it is clear that an order under s 291 can be made in the light of our findings.
Result
[57] We dismiss the appeal. We award costs to Avoca of $6,000 together with reasonable disbursements, including travel and accommodation costs of its counsel. These should be agreed by counsel but, if agreement cannot be reached, they are to be fixed by the registrar.
Solicitors:
Knight Coldicutt Auckland for Appellant
Carter & Partners Auckland for RespondentAPPENDIX
Relevant Provisions of NZIA Conditions
Liquidated damages
72If the Contractor does not Practically Complete the Contract Works, or a Separate Section of them, on time, the Principal is entitled to liquidated damages at the rate stated in the Specific Conditions. The liquidated damages will run from the time for Practical Completion of the Contract Works, or a Separate Section of them, as required by the Contract to the time of actual Practical Completion of the Contract Works, or a Separate Section.
72.1The liquidated damages for any Separate Section do not apply in respect of any period for which liquidated damages are applied in respect of the whole of the Contract Works.
Contractor may apply for progress payment certificate
73The Contractor is entitled to apply to the Architect once a month for a progress payment certificate. The Contractor’s claim must state the following information:
(a)the value of the work done, including the value of Variations carried out; and
(b)if provided for in the Specific Conditions, the value of any fluctuations; and
(c)the value of materials and fittings delivered to the Site but not yet fixed in place, subject to their being adequately stored and secured; and
(d)the value of any materials or fittings not yet delivered to the Site for which the Contractor wants to be paid; and
(e)any other sum the Contractor is entitled to under the Contract.
73.1The information to be provided by the Contractor must be sufficient for the Architect to assess the validity of the claim. The claim must state whether the Contractor’s insurance is in place.
73.2If the Contractor claims payment for materials and fittings not yet delivered to the Site or delivered to the Site but not yet fixed in place, the Contractor must establish to the satisfaction of the Architect:
(a)ownership of the materials and fittings will pass to the Principal, free of any lien or charge, when the Contractor is paid; and
(b)the materials and fittings are properly and separately stored, labelled the property of the Principal and insured in the names of the Principal and the Contractor.
Architect’s assessment of the claim
74The Architect must assess the Contractor’s claim. In assessing the claim the Architect must allow for a reasonable assessment of the amount payable for any item which cannot be properly verified within the required time. The Architect must not allow any amount claimed in relation to materials and fittings not yet delivered to the Site unless the Architect is satisfied on the matters set out in Rule 73.2 and the Principal has agreed to it. The Architect must not allow an amount in respect of anything for which the Contractor’s insurance is not in place, nor for materials or fittings that are not adequately stored and secured.
74.1The Architect must deduct the following amounts from the amount the Architect assesses:
(a)the amount the Principal is entitled to retain as stated in rule 79.
(b)any liquidated damages that have become payable under rule 72.
(c)any other amounts which the Contract allows to be deducted.
(d)the total of the amounts which the Architect has previously certified for payment.
Architect to certify payment
75The Architect must then certify the remaining amount for payment and give a copy of the progress payment certificate to the Principal and Contractor, unless:
(a)it is less than the minimum progress payment stated in the Specific Conditions;
(b)the Contractor’s insurances required by the Contract, are not in place;
(c)the Contractor has not provided any bond as required by the Contract.
The Architect must do so within 5 Working Days after the later of receiving the Contractor’s claim or receiving sufficient information to properly assess the claim.
75.1Any materials or fittings taken into account in the progress payment certificate become the property of the Principal. The Contractor must still take care of them, and must not remove them from the Site.
75.2The giving of a progress payment certificate does not imply that the Architect or the Principal accepts the work. Nor does it relieve the Contractor of responsibility for correcting any defects.
75.3The Architect must give to the Contractor details of any adjustment made to the Contractor’s claim.
Principal must pay
76.The Principal must pay the amount certified by the Architect within 7 Working Days of the date of the payment certificate. If the Principal fails to pay on time, the Principal must pay interest compounding monthly.
76.1The interest rate is the Contractor’s average Trading Bank overdraft rate payable, or which would be payable, by the Contractor over the period during which the amount was outstanding until it is paid, multiplied by 1.25.
76.2The Principal must pay the accruing interest with the certified amount (whether the Contractor is in overdraft or not).
76.3In the event of unreasonable delay in the issue of a certificate for any claim or part of a claim which is later certified the Contractor shall be entitled to interest on the amount owing, from the date on which it would have been payable if the delay had not occurred, down to the date of payment.
Contractor may suspend work for non-payment
85If the Principal fails to pay an amount which is owed by the Principal to the Contractor under the Contract or has not provided security to the Contractor’s satisfaction, the Contractor is entitled to notify the Principal and the Architect that the Contractor will suspend work if this amount remains unpaid after a further 5 Working Days. The Contractor must deliver the notice by receipted delivery or by hand. If the Contractor suspends work as stated in this rule, the Contractor does not have to resume work until the amount owing and any Costs incurred in relation to the suspension, are paid to the Contractor or payment is secured to the Contractor’s satisfaction.
85.1Rule 95 does not apply to this rule.
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