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This case concerned an application by the Claimant, Vision Construction Limited (“VCL”), for declarations regarding the proper construction of a contractual payment mechanism under the JCT DB Sub/C 2016 subcontract (the “Subcontract”) by which it employed the Defendant, Gypcraft Drylining Contractors Limited (“Gypcraft”). Ostensibly, the sum at issue was £216,947.75 plus interest, which had been paid to the Defendant pursuant to an adjudicator’s decision dated 12 November 2024. VCL’s contention was that if its arguments were successful, these would invalidate the adjudicator’s decision and the sum would be liable to be repaid.
The parties entered into the Subcontract on 12 November 2020. The Subcontract incorporated a document known as “Numbered Document 6” which set out agreed interim payment dates between April 2020-2 February 2021. Since Gypcraft’s works on site were agreed to start no earlier than 1 December 2020 this document was largely redundant from the outset. Instead, VCL issued a series of updated schedules to Gypcraft, each one detailing the following dates for subsequent payment periods:
“i) Sub-Contractor Submission Valuation Date;
ii) Due date;
iii) Accounts to issue Payment Notice by;
iv) Payless Notice to be issued by;
v) Final date for Payment.”
On 14 September 2022, Gypcraft issued its payment application no. 20, seeking circa £90,000. VCL then issued a Payment Notice certifying a sum due of only about £32,000. A similar pattern occurred for the subsequent two payment applications in October and November 2022. Notably, none of the payment notices were served in accordance with the schedule VCL had issued.
Gypcraft then issued its interim application for payment no. 23 on 16 January 2023, in which it sought payment of the sum of £342,385.52. VCL issued a payment notice stating that the sum due to Gypcraft was £125,437.77 on 7 February 2023 and paid this sum. Like the previous purported payment notices, this notice was not served on time, but 5 days after the payment notice date in the schedule. VCL did not serve a pay less notice. Gypcraft then referred a dispute to adjudication, claiming the shortfall of £216,947.75. The adjudicator found that VCL’s notice of 7 February 2025 was not a valid payment notice, and that Gypcraft was entitled to the outstanding £216,947.75 and interest.
In these Part 8 Proceedings, VCL put forward three key arguments. Its first argument was that the Subcontract failed to identify a relevant “Interim Valuation Date” for Payment Cycle no. 23, and must be re-written by the default provisions in Part II of the Scheme for Construction Contracts, the effect of which would have been that Gypcraft would not have been entitled to issue its interim application for payment no. 23. VCL also argued that there was a convention between the parties that Gypcraft would accept VCL’s payment notices out of time, so that Gypcraft was estopped from denying that VCL’s purported payment notice was effective. Further, VCL argued that even if its purported payment notice was out of time to serve as a payment notice, it was still in time to serve as a pay less notice and contained all of the information required of a pay less notice.
The judge rejected VCL’s contentions and declined to make the declarations sought. In respect of its arguments regarding the payment schedule, the Judge found that the argument that the schedules issued did not set out clear and unambiguous interim valuation dates to be an impossible reading, and that the relevant schedule clearly and methodically gave effect to the dates and regime contemplated by the Subcontract. The judge also did not consider an estoppel to arise, as there was insufficient evidence that any convention arose between the parties that payment notices could be given out of time or evidence of any reliance by VCL (as this would require VCL to demonstrate that they were issuing payment notices late because of some sort of convention). Finally, VCL’s argument that the purported payment notice could serve as a pay less notice was rejected as the document in question was clearly identified as a payment notice and in any event it would undermine both the Construction Act and the Subcontract to permit what was intended to be a payment notice to retrospectively be converted into a pay less notice.
The key conclusion in this case is that it remains crucial for contractors and employers to establish a clear contractual payment regime with clear notice and payment dates, to understand the regime put in place and to make sure that notices are clearly compliant in their form and on time. Otherwise, a party risks forfeiting important contractual rights and incurring unnecessary liabilities.