Rok Construct (2017) Limited v Siena Properties (Bardeaux) Limited: [2024] JRC 206

On 3^rd February 2022, Rok and Siena entered a building contract valued at £11.1 million for development works, later varied to £12.5 million due to delays and modifications. Tillyard, the contract administrator and quantity surveyor, was responsible for issuing interim certificates and valuations. The contract, governed by Jersey law, provided for a retention mechanism (Clause 4.9.1), which allowed Siena to retain 22.5% of the contract sum until practical completion. A side letter dated 4^th February 2022 capped this retention at £2.5 million.

Dispute Overview: Interim Certificates Numbers 23, 24, and 25 were issued by Tillyard, certifying payments due from Siena to Rok. Siena, however, did not make the required payments, asserting that the retention sum of 22.5% was uncapped and should exceed the £2.5 million cap stipulated in the side letter. As a result, Rok initiated legal proceedings on 7^th March 2024 to recover the outstanding sums, including £97,496.75 and £70,972.17 under Interim Certificates 23 and 24, and £82,884 under Interim Certificate 25.

Siena’s Application for Stay: On 16^th April 2024, Siena filed a summons seeking to stay the proceedings under Rule 6/7 of the Royal Court Rules, invoking the arbitration clause in the contract. Siena’s argument was that disputes over the retention sum and payments should be resolved through arbitration rather than court proceedings. The application was supported by an affidavit from Tillyard’s director, Mr. Allo, who referred to an unusual retention provision of 22.5% without a cap, suggesting this sum increased with variations to the contract.

Rok’s Counterargument: Rok opposed the stay, arguing that the retention sum was clearly capped at £2.5 million by the side letter and that Siena had not issued Pay Less Notices, as required by the contract, to dispute the sums certified in the interim certificates. Rok asserted that the sums certified in the certificates were valid and payable, and arbitration was unnecessary as there was no genuine dispute over the payment obligations.

Court’s Analysis:

Arbitration and Stay Application: The Court determined that the arbitration provision under Article 8 of the contract did not automatically apply to all disputes. Article 5 of the Arbitration Law allows for a stay only if there is a genuine dispute warranting arbitration. In this case, the issue was not a true dispute but rather an interpretation of the agreed retention cap, which was clearly set at £2.5 million in the side letter. The Court found no basis for arbitration since the terms were unambiguous, and Siena had failed to raise a valid dispute requiring resolution through arbitration.

Retention Sum: The Court considered the retention provisions in both the contract and the side letter. While Appendix L of the contract referred to a retention of 22.5%, the side letter capped this retention at £2.5 million. Tillyard’s interim certificates, including numbers 23 and 24, adhered to this cap. The Court found no evidence of any agreement to exceed the £2.5 million cap, and Siena’s assertion that retention could be uncapped was unsupported.

Pay Less Notices: Under Clause 4.12.5 of the contract, Siena was required to issue Pay Less Notices if it intended to dispute or reduce any sums certified in the interim certificates. Siena had not issued any such notices, meaning that the sums certified were deemed due and payable.

Practical Completion and Reduced Retention: The Court noted that a certificate of practical completion was issued on 8 March 2024. Following this, the retention percentage reduced to 1.5% of the contract sum under the terms of the contract. This development significantly diminished Siena’s ability to withhold large sums of money under the retention mechanism.

Court’s Decision: The Court rejected Siena’s application for a stay, ruling that there was no valid dispute to be referred to arbitration. The sums certified in the interim certificates were deemed payable, as no Pay Less Notices had been issued, and the retention sum was capped at £2.5 million as per the side letter. The Court did not grant immediate judgment in favour of Rok but indicated that unless Siena took further steps by 8 June 2024, when the retention sum would further reduce, Rok would be entitled to the outstanding payments.

Conclusion: The Court held that Siena was obligated to pay the amounts certified in the interim certificates as there was no valid dispute regarding the retention cap or the sums due. The arbitration clause did not apply, and Siena’s failure to issue Pay Less Notices meant the sums became automatically due for payment. The Court’s ruling emphasised the importance of adherence to contractual payment mechanisms and the limited scope of arbitration in clear-cut cases.

Full Judgement Here