Developer back-tracking over budget blow-out – VH Five SPV Limited v Kimble Contracting Limited

 

Building company Kimble Contracting Limited entered into a fixed price agreement with property developer VH Five SPV Limited. As expected, the parties agreed the timing of payment claims, when the principal was to issue its payment schedules, and thereafter when payment of the scheduled amount would occur. Unusually in this contract, those ‘timetable’ terms ceased to operate after a date specified.

Unfortunately, the project was tracking to be a major budget blow-out. In spite of this, in response to Kimble’s June 2015 payment claims, a representation was given by the developers’ project manager prior to the payment schedule being issued that half of the invoices in the contractor’s payment claim had been approved. When the schedule was issued a little over a week later, the developer now refused to pay any amount claimed, as in its view the contractor would shortly be in breach of the fixed price (within the contract).

Kimble served a statutory demand on VH Five for the full amount claimed, believing the payment schedule not to have been issued in accordance with the timeframes agreed in contract. Accordingly, it viewed the whole of its June claimed amount as a debt due under the CCA. The developer succeeded in the High Court in having the demand set aside. The June 2015 payment claim was issued after the date when the agreed ‘timetable’ ceased to operate. Therefore, there was a clearly arguable case that the s 15 CCA default provisions applied and the developer’s schedule may have been issued within time. Second, the Court commented on the need to test further the representations made by the developer’s project manager, but it was inappropriate to do so in a contested statutory demand hearing.

It is always important to understand the special or amending conditions of a construction contract. In the absence of payment provisions, the CCA implies those into the contract. A further lesson for contractors is that it is unwise to rely on any indication given by a project managers before a payment schedule has been issued regarding approval of payment. Especially so in this case, as the indication was given by a project manager rather than the Engineer to the contract.

The full decision can be accessed here.

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