好色先生TV

An interim payment regime with reference to milestones achieved, rather than value, is not uncommon. It is often found in energy projects, for example, where these can include mechanical completion, testing, and commercial operation milestones. 

Disputes as to when or how such milestones are achieved are also relatively common. The Court of Appeal judgment in Bennett (Construction) Ltd vs CIMC MBS Ltd [2019] EWCA Civ 1515 looked at just such a dispute. It concerned a subcontract incorporating the JCT form for the design, supply and installation of modular bedroom units for a hotel. Bennett was the main contractor and CIMC MBS (formerly Verbus) the subcontractor. The modules were to be manufactured in China to a prototype and then fitted out at the factory under CIMC鈥檚 supervision. They were then to be signed off and snagged at the factory before being shipped to the UK. 

Bennett claimed the units did not comply with the contract and were never signed off in China. The main contract ended on the employer鈥檚 insolvency and the units were never used. 

CMIC was unsuccessful in an adjudication seeking declarations that milestones 2, 3 and 4 were not an adequate payment mechanism under the Construction Act. It had claimed that they referred to sign-off with no description of how this would happen or by whom.

This was on the basis that milestone 2 did not detail the timing of such sign鈥憃ff and what the sign鈥憃ff was

In a subsequent Part 8 application by CIMC, Judge Waksman found milestones 2 and 3 were too uncertain to represent an adequate payment mechanism. This was on the basis that milestone 2 did not detail the timing of such sign鈥憃ff and what the sign鈥憃ff was. He relied upon the fact that the specification also referred to sign鈥憃ff, which he considered meant some form of approval by clients. 

On milestone 3 he similarly found too much uncertainty to enforce it. He said the criteria for sign鈥憃ff were far from clear. By contrast, he found the reference to sign鈥憃ff at Southampton simply meant proof of delivery of units. The judge ultimately found that two unworkable milestones rendered all of the milestones unworkable and the payment provisions were replaced in their entirety by provisions of the  Scheme for Construction Contracts. 

On appeal, with Lord Justice Coulson providing the leading judgment, the court took a different view. They took a broad view of the meaning of 鈥渟ign鈥憃ff鈥�. They considered that the absence of a reference to production of a certificate or record of any sort meant there was to be no physical sign鈥憃ff. They found that if the contract had meant 鈥渟ign鈥憃ff鈥� to involve the production of an actual signed record it would have said so. 

Even if it did require some formal acceptance by Bennett or the ultimate employer, the Court of Appeal found that CSIM would still be entitled to payment should it be able to prove that the units were capable of being signed off. On that basis the milestone payment terms were upheld.

CSIM became entitled to payment with reference to the value of works

The Court of Appeal鈥檚 first finding as to what was meant by 鈥渟ign鈥憃ff鈥� might seem surprising to those involved in certification or approval processes, as generally a reference to sign鈥憃ff will be taken to be more than simply verbal acceptance. Judge Waksman had relied upon several additional references to sign鈥憃ff in the specification but the Court of Appeal found that there were numerous other contract references to sign鈥憃ff which were indiscriminate. 

What is clear is that the Court of Appeal wanted to make these milestones work as, to quote Lord Justice Coulson, the effect of finding all of the milestones non-compliant with the Construction Act meant CSIM became entitled to payment with reference to the value of works. This could have given CSIM an entitlement to interim payments potentially well before the units were 鈥渟igned off as complete鈥�. That, Lord Justice Coulson said, is 鈥渁 significant reapportioning of the commercial risk to which parties had agreed鈥�. 

Milestone payment drafting is often scrutinised and challenged. This is particularly the case where there are delays in achieving that milestone or where the contract value has been increasing but with no commensurate increase in the milestone values. As is shown here, the words have to be chosen carefully.

Lindy Patterson QC is a barrister, arbitrator and adjudicator at 39 Essex Chambers