News and Insights

Background

Viberts’ client (the “Contractor”) entered into a property development JCT contract (modified to be governed by Jersey law). The Contractor had permitted a retention to the developer (the “Employer”) up to a certain limit pursuant to a JCT side letter. The Contractor sought payment of sums owed under interim certificates, but the Employer did not oblige and the funds remained outstanding.
 
The Contractor therefore referred the matter to the Royal Court seeking payment of the interim payments as a debt. However, without denying the sums were owed, the Defendant Employer sought a Stay of proceedings to facilitate Arbitration as it stated that the Arbitration clauses of the JCT contract applied.
 
Such a Stay and referral to Arbitration would have slowed down the recovery of the debt whilst significantly  increasing the costs of recovery. Accordingly the Contractor sought Judgment immediately as the debt was indefensible, rather than a matter for determination before an Arbitrator.
 
Contract terms
 
Article 8 of the contract allowed for the parties to agree to arbitration: “Where Article 8 applies… …any dispute or difference between the Parties of any kind whatsoever arising out of or in connection with this Contract shall be referred to arbitration…” 

Clause 4.12.5 provided conditions in relation to pay less notices: “Where the employer intends to pay less than the sum stated as due from him in a payment certificate … …the party paying him the payment as stated payable shall not less than 5 days before the final date for payment give the other party notice of that intention…” 

Pay less notices

The Contractor’s best early recourse would have been to issue a Pay Less Notice, but it did not. The danger of not complying with the requirement to serve a Pay Less Notice is one that cannot and must not be ignored. The timeframes for doing so are strict and contractually binding and once the deadline has passed it is too late to object to the amount that has been claimed and the consequences can be acute. 

The Court’s ruling

The Royal Court refused the Employer’s application for a Stay because Article 5 of the Arbitration Law does not contain an absolute right to refer matters to Arbitration. The Court should not grant a Stay where there is not in fact any dispute between the parties. 

The Court stated

“In this case, the terms of the contract agreed between the parties in relation to the interim payment mechanism are clear… …I therefore accept Advocate Emmanuel’s submission that the Defendant has not served any Pay Less Notices as required by Clause 4.12 to avoid the interim certificates otherwise becoming due from the Defendant to the Plaintiff.”

“The rationale for the interim payment mechanism is so that on large projects contractors receive a regular flow of monies.  The employer is therefore obliged to make payments due under interim certificates. If a dispute subsequently arises in relation to the quality of the works which is referred to arbitration, such a referral does not prevent payment being made under interim certificates.”

The Court, in refusing the Stay, granted permission for the Contractor to enter Judgment, which the Contractor later did successfully. Moreover, the Court granted indemnity costs for the Contractor as there was clearly no defence to the payments due under the interim certificates.

Contract review

Clients regularly instruct us to review JCT contracts and to ‘Jerseyify’ the same and by doing so we are able to provide our clients with the benefit of hindsight beforehand over the contract specifics and the nuanced detail. This is also the most effective way of avoiding disputes and recourse to the Courts that saves our clients time, financial resources and risk.

Viberts are also available to assist its clients in the cost-effective and time-efficient resolution of construction disputes in order to help keep projects on time and on budget.