VDC engaged Deerns to provide engineering consultancy services. In a hearing before Eyre J, Deerns sought payment of £900k plus VAT, said to be due as a result of the failure by VDC to serve two timely pay less notices. Deerns said that the contract failed to provide a final date for payment as required by s110(1)(b) of the HGCRA, with the result that the Scheme applied. If the Scheme applied, then the pay less notices were indeed late.
Under the contract, the fee was to be paid in the instalments stated in Schedule 1. The due date for payment of each instalment was specified in Schedule 1. The final date for payment was 30 days after the relevant due date, save that if the invoice was issued late, the final date for payment would be postponed by the same number of days by which the invoice was late. If VDC intended to pay less than the notified sum, it was required to give a pay less notice not later than five days before the relevant final date for payment.
Schedule 1 provided that Deerns should submit its monthly invoices to VDC in accordance with the Schedule of Valuation Dates. If the dates expired or were not shown, then Deerns should invoice VDC at the end of each month for services performed during that month.
Both parties agreed that a contract which did not provide for an identified and fixed period between the due date for payment and the final date for payment failed to provide for a final date for payment for the purposes of s110(1). It was open to parties to have a payment mechanism which varied the due date for payment, but they had to provide for a fixed period between the due date for payment (however that date was established) and the final date for payment in order for the mechanism to comply with s110(1) of the HGCRA.
The judge referred to the comments of Coulson LJ in Bennett (Construction) Ltd v CIMC MBS Ltd [2019] EWCA Civ 1515 that the purpose of the HGCRA: “was to provide for certain minimum, mandatory standards so as to achieve certainty and regular cash flow“. An element of that certainty was for the parties to know from the outset that the final date for payment would always be an identified and fixed period after the due date for payment.
VDC said that, when interpreting the contract, the judge should give priority to the Schedule of Valuation Dates. This set out a mechanism for calculation of the various relevant dates. As a consequence, the due date for payment would vary depending on the date when the payment application was issued, but the interval between the due date for payment and the final date for payment would not vary and would remain at 30 days. The Schedule identified particular dates and set out a particular method of calculation.
Deerns said that the contract could and should be read as a whole with a view to ascertaining the intention of the parties. There was no basis for giving priority to the Schedule of Valuation Dates and it was not necessary to do so in order adequately to interpret the contract.
The judge said that the starting point for the court was to ascertain the intention of the parties and to do so by considering the objective meaning of the language used when read in context. Here, the judge was satisfied that the effect of the contract, properly interpreted, was to fix the dates by reference to which instalment payments were to be made and the due dates for payment were determined, but that the final date for payment could vary depending on the date of Deerns’ payment application.
The parties agreed a series of fixed dates. Having done that, they then made provision for one of those, the final date for payment, to move if the payment application was issued late, but not for the others to be changed. The payment application might be issued late but still had to relate to a particular monthly period, and that period and the due date for payment were unaffected by the late issue of the application.
It therefore followed that the final date for payment could be postponed if the payment application was issued after the date provided for in the Schedule of Valuation Dates, but no provision was made for any movement in the due date for payment in those circumstances. Consequently, it was possible for the final date for payment to be more than 30 days after the due date for payment and for the interval between the due date for payment and the final date for payment to vary. The contract therefore failed to provide a final date for payment because, although the interim valuation date and the due date for payment remained fixed, the final date for payment could vary.
As a result, the final date for payment was not determined solely by reference to the due date for payment but was dependent on a different event, namely the date when the payment application was issued. It therefore failed to provide a final date for payment as required by s110(1), which meant that the Scheme applied and the pay less notices had been served late and were out of time.
Alternatively, VDC said that the parties had operated the payment provisions in a way which was, in fact, compliant with the HGCRA. Deerns was therefore estopped from arguing that the contract was to be operated in a different way. The judge referred to the comments of O’Farrell J in C Spencer Ltd v MW High Tech Projects UK Ltd [2019] EWHC 2547 (TCC), where she said:
“Where parties to a transaction proceed on the basis of a shared underlying assumption on which they have conducted their dealings between them, neither will be allowed to depart from that assumption, even if it is shown to be wrong, when it would be unfair or unjust to do so in all the circumstances”.
The judge considered that VDC’s assertion of the common or shared understanding was: “advanced in vague and unparticularised terms”. There was no suggestion that there were any oral dealings which led to the understanding, nor was there any correspondence to this effect. Further, the alleged common understanding would amount to a marked departure from the contract terms in relation to an important matter, but it was not suggested that there was any express acknowledgement of this. The dealings between the parties, as shown in the documents, did not demonstrate that VDC had acted on the basis of the alleged understanding, and still less did they demonstrate that the understanding was shared by Deerns. There was a degree of informality in the parties’ dealings, and neither side always held the other rigorously to the terms of the contract. However, this was not enough to:
“demonstrate that there was an estoppel by convention let alone one in the terms alleged by the Defendant amounting to a restructuring of the Contract.”
