VVB v Optilan

Citation: [2020] EWHC 4 (TCC)

This judgment, arising out of a part of the Crossrail project, provides an interesting start to 2020.  In summary a subcontractor and a subsubcontractor (the defendant) agreed that £1m odd worth of specialist materials would become the property of the subcontractor / Network Rail provided that the subcontractor “included” agreed values against the vested materials in the next payment to be made to the subsubcontractor. The subcontractor did this but, and this is the bit that seems to have given rise to a dispute, at the same time modified the values attributed to other items in the account with the result that overall nothing was “due”. Then the subcontractor went into administration. Proceedings were brought by the subcontractor’s assignee, claiming injunctive relief and an order for delivery up of the materials. Justin Mort QC, who acted for the claimant, provides his commentary on the case below.

CASE COMMENTARY

The case is somewhat fact specific.  The sorts of issues that often arise in relation to interim applications for injunctive relief fell away because of the parties’ mutual readiness to treat the one day hearing as a final disposal of all issues between them.  However: deep within HH Judge Rossen QC’s absolutely expert analysis is reference to one point of general principle relating to the proper application of the 1996 Act as amended.

In VVB an issue arose as to whether the payer was entitled to issue a valid pay less notice against a payment notice in circumstances where the sum said in the pay less notice to be due to be paid (in this case £0.00) was the same as the notified sum but the proposed calculation of it was different. It was relevant here because, on VVB’s case (accepted by the judge), the interim payment needed only to “include” the agreed sums for vested materials ie include in the calculation. The pay less notice did this correctly, but not the payment notice. Optilan’s argument that a “pay less” notice was a nullity in those circumstances was rejected.  See the judgment at [69] and [94].

But the same point is of wider interest.  Under the original Act (ie before the 2011 amendments) a payer had to serve notice of its intention to withhold payment and the grounds relied upon. Having done so it was then limited to the matters identified in what was then a withholding notice: Windglass Windows Ltd v Capital Skyline Construction Ltd [2009] EWHC 2022 (TCC).  But that in my mind always raised the question: what if the sum calculated as “due” was (in the payer’s assessment) correct but wrong in its calculation? There would in those circumstances be no intention to “withhold” anything as such. Suppose that the architect had wrongly valued the work as £0, in circumstances where there had been work of value, but the employer was also entitled to withhold LDs for delay or damages for defective work in an amount greater than the value of the work. At what stage would the employer be able to give notice about the LDs / defects? Windglass (and other cases) indicate that without the appropriate withholding notice the payer could not have relied upon these defences to the claim for payment.

Some part of that analysis is anomalous.

The same or equivalent group of issues arises or may arise under the Act as amended.   The first question is whether and/or to what extent does Windglass or its underlying reasoning apply to the amended Act: is the payer restricted to the calculation notified, as Windglass might suggest, or is the payer free – at the adjudication stage – to come up with some entirely new justification for the notified sum?  If the payer is free to come up with an entirely new calculation, for example when responding to an adjudication, what then is the purpose in requiring it to give a notice of how the sum is calculated? Surely the requirement to give notice of how the sum said to be due is calculated is, as the withholding notice was before it, there to provide a limited and notified agenda for dispute resolution ie (typically) in adjudication.

On the other hand if the payer wants to provide a different calculation but for the same balance as the notified sum (or it may be for a higher payment but nonetheless less than the sum applied for by the payee) how or when does it do so? There would need to be a pay the same / pay more notice.

No doubt the answer is obvious to others.

JUDGMENT

The full judgment can be found on Bailii.

Counsel

Justin Mort QC

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