December 13, 2024
Background
On 3 February 2022, Rok and Siena entered into a building contract valued at £11.1 million for development works. The contract value was later varied to £12.5 million to reflect delays and modifications. Tillyard acted as both contract administrator and quantity surveyor and was responsible for issuing interim certificates and valuations. The contract was governed by Jersey law and included a retention mechanism under clause 4.9.1, allowing Siena to retain 22.5% of the contract sum until practical completion. A side letter dated 4 February 2022, however, capped the retention at £2.5 million.
Dispute overview
Interim Certificates 23, 24 and 25 were issued by Tillyard, certifying payments due from Siena to Rok. Siena failed to make the certified payments, arguing that the 22.5% retention was uncapped and could exceed the £2.5 million limit set out in the side letter. As a result, Rok commenced legal proceedings on 7 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 a stay
On 16 April 2024, Siena issued a summons seeking a stay of the proceedings under Rule 6/7 of the Royal Court Rules, relying on the arbitration clause in the contract. Siena argued that disputes relating to the retention sum and certified payments should be resolved through arbitration rather than by the Court. The application was supported by an affidavit from Mr Allo, a director of Tillyard, who referred to what he described as an unusual retention provision of 22.5% without a cap, suggesting that the retained amount increased as the contract value increased.
Rok’s response
Rok opposed the application for a stay, maintaining that the retention was expressly capped at £2.5 million by the side letter. Rok further argued that Siena had failed to issue any Pay Less Notices, as required under the contract, to challenge the sums certified in the interim certificates. In the absence of such notices, Rok contended that the certified sums were valid, due and payable, and that there was no genuine dispute requiring arbitration.
The Court’s analysis
Arbitration and the stay application
The Court held that the arbitration provision in Article 8 of the contract did not apply automatically to all disputes. Under Article 5 of the Arbitration Law, a stay may only be granted where there is a genuine dispute suitable for arbitration. In this case, the Court found that the issue was not a true dispute but a matter of contractual interpretation. The side letter clearly capped the retention at £2.5 million, and there was no ambiguity requiring determination by an arbitrator. Accordingly, there was no basis for granting a stay.
Retention sum
The Court considered the retention provisions in both the contract and the side letter. Although Appendix L referred to a retention of 22.5%, the side letter expressly limited that retention to £2.5 million. The interim certificates issued by Tillyard, including Certificates 23 and 24, reflected this cap. The Court found no evidence of any agreement to remove or exceed the £2.5 million limit, and Siena’s assertion that the retention was 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 issued no such notices. As a result, the sums certified were deemed due and payable.
Practical completion and reduced retention
The Court noted that a certificate of practical completion had been issued on 8 March 2024. Following practical completion, the retention percentage reduced to 1.5% of the contract sum under the terms of the contract. This significantly limited Siena’s ability to withhold substantial sums under the retention mechanism.
Decision
The Court dismissed Siena’s application for a stay, finding that there was no valid dispute to be referred to arbitration. The retention sum was capped at £2.5 million in accordance with the side letter, and the sums certified in the interim certificates were payable because Siena had failed to issue Pay Less Notices. While the Court did not grant immediate judgment in favour of Rok, it indicated that, unless Siena took further steps by 8 June 2024—when the retention would reduce further—Rok would be entitled to payment of the outstanding sums.
Conclusion
The Court held that Siena was obliged to pay the amounts certified in the interim certificates. There was no genuine 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 certified sums became automatically payable. The judgment underscores the importance of strict compliance with contractual payment mechanisms and the limited role of arbitration where contractual terms are clear.
Background
On 3 February 2022, Rok and Siena entered into a building contract valued at £11.1 million for development works. The contract value was later varied to £12.5 million to reflect delays and modifications. Tillyard acted as both contract administrator and quantity surveyor and was responsible for issuing interim certificates and valuations. The contract was governed by Jersey law and included a retention mechanism under clause 4.9.1, allowing Siena to retain 22.5% of the contract sum until practical completion. A side letter dated 4 February 2022, however, capped the retention at £2.5 million.
Dispute overview
Interim Certificates 23, 24 and 25 were issued by Tillyard, certifying payments due from Siena to Rok. Siena failed to make the certified payments, arguing that the 22.5% retention was uncapped and could exceed the £2.5 million limit set out in the side letter. As a result, Rok commenced legal proceedings on 7 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 a stay
On 16 April 2024, Siena issued a summons seeking a stay of the proceedings under Rule 6/7 of the Royal Court Rules, relying on the arbitration clause in the contract. Siena argued that disputes relating to the retention sum and certified payments should be resolved through arbitration rather than by the Court. The application was supported by an affidavit from Mr Allo, a director of Tillyard, who referred to what he described as an unusual retention provision of 22.5% without a cap, suggesting that the retained amount increased as the contract value increased.
Rok’s response
Rok opposed the application for a stay, maintaining that the retention was expressly capped at £2.5 million by the side letter. Rok further argued that Siena had failed to issue any Pay Less Notices, as required under the contract, to challenge the sums certified in the interim certificates. In the absence of such notices, Rok contended that the certified sums were valid, due and payable, and that there was no genuine dispute requiring arbitration.
The Court’s analysis
Arbitration and the stay application
The Court held that the arbitration provision in Article 8 of the contract did not apply automatically to all disputes. Under Article 5 of the Arbitration Law, a stay may only be granted where there is a genuine dispute suitable for arbitration. In this case, the Court found that the issue was not a true dispute but a matter of contractual interpretation. The side letter clearly capped the retention at £2.5 million, and there was no ambiguity requiring determination by an arbitrator. Accordingly, there was no basis for granting a stay.
Retention sum
The Court considered the retention provisions in both the contract and the side letter. Although Appendix L referred to a retention of 22.5%, the side letter expressly limited that retention to £2.5 million. The interim certificates issued by Tillyard, including Certificates 23 and 24, reflected this cap. The Court found no evidence of any agreement to remove or exceed the £2.5 million limit, and Siena’s assertion that the retention was 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 issued no such notices. As a result, the sums certified were deemed due and payable.
Practical completion and reduced retention
The Court noted that a certificate of practical completion had been issued on 8 March 2024. Following practical completion, the retention percentage reduced to 1.5% of the contract sum under the terms of the contract. This significantly limited Siena’s ability to withhold substantial sums under the retention mechanism.
Decision
The Court dismissed Siena’s application for a stay, finding that there was no valid dispute to be referred to arbitration. The retention sum was capped at £2.5 million in accordance with the side letter, and the sums certified in the interim certificates were payable because Siena had failed to issue Pay Less Notices. While the Court did not grant immediate judgment in favour of Rok, it indicated that, unless Siena took further steps by 8 June 2024—when the retention would reduce further—Rok would be entitled to payment of the outstanding sums.
Conclusion
The Court held that Siena was obliged to pay the amounts certified in the interim certificates. There was no genuine 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 certified sums became automatically payable. The judgment underscores the importance of strict compliance with contractual payment mechanisms and the limited role of arbitration where contractual terms are clear.
Background
On 3 February 2022, Rok and Siena entered into a building contract valued at £11.1 million for development works. The contract value was later varied to £12.5 million to reflect delays and modifications. Tillyard acted as both contract administrator and quantity surveyor and was responsible for issuing interim certificates and valuations. The contract was governed by Jersey law and included a retention mechanism under clause 4.9.1, allowing Siena to retain 22.5% of the contract sum until practical completion. A side letter dated 4 February 2022, however, capped the retention at £2.5 million.
Dispute overview
Interim Certificates 23, 24 and 25 were issued by Tillyard, certifying payments due from Siena to Rok. Siena failed to make the certified payments, arguing that the 22.5% retention was uncapped and could exceed the £2.5 million limit set out in the side letter. As a result, Rok commenced legal proceedings on 7 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 a stay
On 16 April 2024, Siena issued a summons seeking a stay of the proceedings under Rule 6/7 of the Royal Court Rules, relying on the arbitration clause in the contract. Siena argued that disputes relating to the retention sum and certified payments should be resolved through arbitration rather than by the Court. The application was supported by an affidavit from Mr Allo, a director of Tillyard, who referred to what he described as an unusual retention provision of 22.5% without a cap, suggesting that the retained amount increased as the contract value increased.
Rok’s response
Rok opposed the application for a stay, maintaining that the retention was expressly capped at £2.5 million by the side letter. Rok further argued that Siena had failed to issue any Pay Less Notices, as required under the contract, to challenge the sums certified in the interim certificates. In the absence of such notices, Rok contended that the certified sums were valid, due and payable, and that there was no genuine dispute requiring arbitration.
The Court’s analysis
Arbitration and the stay application
The Court held that the arbitration provision in Article 8 of the contract did not apply automatically to all disputes. Under Article 5 of the Arbitration Law, a stay may only be granted where there is a genuine dispute suitable for arbitration. In this case, the Court found that the issue was not a true dispute but a matter of contractual interpretation. The side letter clearly capped the retention at £2.5 million, and there was no ambiguity requiring determination by an arbitrator. Accordingly, there was no basis for granting a stay.
Retention sum
The Court considered the retention provisions in both the contract and the side letter. Although Appendix L referred to a retention of 22.5%, the side letter expressly limited that retention to £2.5 million. The interim certificates issued by Tillyard, including Certificates 23 and 24, reflected this cap. The Court found no evidence of any agreement to remove or exceed the £2.5 million limit, and Siena’s assertion that the retention was 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 issued no such notices. As a result, the sums certified were deemed due and payable.
Practical completion and reduced retention
The Court noted that a certificate of practical completion had been issued on 8 March 2024. Following practical completion, the retention percentage reduced to 1.5% of the contract sum under the terms of the contract. This significantly limited Siena’s ability to withhold substantial sums under the retention mechanism.
Decision
The Court dismissed Siena’s application for a stay, finding that there was no valid dispute to be referred to arbitration. The retention sum was capped at £2.5 million in accordance with the side letter, and the sums certified in the interim certificates were payable because Siena had failed to issue Pay Less Notices. While the Court did not grant immediate judgment in favour of Rok, it indicated that, unless Siena took further steps by 8 June 2024—when the retention would reduce further—Rok would be entitled to payment of the outstanding sums.
Conclusion
The Court held that Siena was obliged to pay the amounts certified in the interim certificates. There was no genuine 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 certified sums became automatically payable. The judgment underscores the importance of strict compliance with contractual payment mechanisms and the limited role of arbitration where contractual terms are clear.
Background
On 3 February 2022, Rok and Siena entered into a building contract valued at £11.1 million for development works. The contract value was later varied to £12.5 million to reflect delays and modifications. Tillyard acted as both contract administrator and quantity surveyor and was responsible for issuing interim certificates and valuations. The contract was governed by Jersey law and included a retention mechanism under clause 4.9.1, allowing Siena to retain 22.5% of the contract sum until practical completion. A side letter dated 4 February 2022, however, capped the retention at £2.5 million.
Dispute overview
Interim Certificates 23, 24 and 25 were issued by Tillyard, certifying payments due from Siena to Rok. Siena failed to make the certified payments, arguing that the 22.5% retention was uncapped and could exceed the £2.5 million limit set out in the side letter. As a result, Rok commenced legal proceedings on 7 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 a stay
On 16 April 2024, Siena issued a summons seeking a stay of the proceedings under Rule 6/7 of the Royal Court Rules, relying on the arbitration clause in the contract. Siena argued that disputes relating to the retention sum and certified payments should be resolved through arbitration rather than by the Court. The application was supported by an affidavit from Mr Allo, a director of Tillyard, who referred to what he described as an unusual retention provision of 22.5% without a cap, suggesting that the retained amount increased as the contract value increased.
Rok’s response
Rok opposed the application for a stay, maintaining that the retention was expressly capped at £2.5 million by the side letter. Rok further argued that Siena had failed to issue any Pay Less Notices, as required under the contract, to challenge the sums certified in the interim certificates. In the absence of such notices, Rok contended that the certified sums were valid, due and payable, and that there was no genuine dispute requiring arbitration.
The Court’s analysis
Arbitration and the stay application
The Court held that the arbitration provision in Article 8 of the contract did not apply automatically to all disputes. Under Article 5 of the Arbitration Law, a stay may only be granted where there is a genuine dispute suitable for arbitration. In this case, the Court found that the issue was not a true dispute but a matter of contractual interpretation. The side letter clearly capped the retention at £2.5 million, and there was no ambiguity requiring determination by an arbitrator. Accordingly, there was no basis for granting a stay.
Retention sum
The Court considered the retention provisions in both the contract and the side letter. Although Appendix L referred to a retention of 22.5%, the side letter expressly limited that retention to £2.5 million. The interim certificates issued by Tillyard, including Certificates 23 and 24, reflected this cap. The Court found no evidence of any agreement to remove or exceed the £2.5 million limit, and Siena’s assertion that the retention was 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 issued no such notices. As a result, the sums certified were deemed due and payable.
Practical completion and reduced retention
The Court noted that a certificate of practical completion had been issued on 8 March 2024. Following practical completion, the retention percentage reduced to 1.5% of the contract sum under the terms of the contract. This significantly limited Siena’s ability to withhold substantial sums under the retention mechanism.
Decision
The Court dismissed Siena’s application for a stay, finding that there was no valid dispute to be referred to arbitration. The retention sum was capped at £2.5 million in accordance with the side letter, and the sums certified in the interim certificates were payable because Siena had failed to issue Pay Less Notices. While the Court did not grant immediate judgment in favour of Rok, it indicated that, unless Siena took further steps by 8 June 2024—when the retention would reduce further—Rok would be entitled to payment of the outstanding sums.
Conclusion
The Court held that Siena was obliged to pay the amounts certified in the interim certificates. There was no genuine 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 certified sums became automatically payable. The judgment underscores the importance of strict compliance with contractual payment mechanisms and the limited role of arbitration where contractual terms are clear.