Vision Construct Ltd v Gypcraft Drylining Contractors Ltd
[2025] EWHC 2707 (TCC)
VCL sought a Part 8 declaration in relation to the proper construction of a subcontract payment mechanism. An adjudicator had awarded Gypcraft £217k plus interest on the basis that Gypcraft had served a valid Interim Payment Application 23, but VCL had failed to serve either a payment or a pay less notice in response, with the result that Gypcraft's Interim Payment Application 23 was payable in full under section 110B(4) of the HGCRA.
VCL said that the subcontract failed to adequately identify a relevant “Interim Valuation Date” for Payment Cycle #23. This was given short shrift by the judge who, by way of an initial observation, referred to the comments of Coulson LJ in Bennett Construction Ltd v CIMC MBS Ltd [2019] BLR 587:
"the courts expect the parties to adopt business common sense as to the arrangements for invoicing and payment."
Here, the judge considered that the Payments Schedule did set out a scheme for Interim Valuation Dates. The adjudicator had been able to give effect “clearly and methodically” to the dates and regime contemplated by the subcontract.
VCL also said that Gypcraft was estopped from relying on the alleged late submission of the notices because none of the payment notices had been issued in accordance with the contractual timetables.
The initial hurdle for VCL was whether a claim for estoppel could be brought using Part 8. The judge noted that claims involving estoppel are generally not suitable for Part 8 where there is a substantial dispute of fact. It was an: “unusual (albeit not impossible) argument to raise in the evidence-free zone of Part 8”.
In short, VCL said that none of the payment notices had been issued in accordance with the contractual timetables. VCL said that:
"The estoppel by convention … arose by reason of the parties communications across the line, objectively construed, as found in the interim payment applications, the payment notices, and the invoices … in which Gypcraft represented to VCL that the net summary position as at the start of that payment cycle was to be found only in the gross value of the work done less the amounts invoiced by Gypcraft in accordance with the previous payment cycles. In particular, by those representations Gypcraft impliedly represented there were no other notified but uninvoiced sums which had to be taken into account when assessing movement in the month (i.e. since the time of the last valuation).”
The relevant legal ingredients of this type of estoppel were set out in Mears Ltd v Shoreline Housing Partnership Ltd [2015] EWHC 1396 (TCC). For an estoppel to arise, there must be a clear and unequivocal communication from one party to the other as to a state of affairs, or a shared understanding between both parties. The first party must have intended that the other rely on its clear and unequivocal communication (or shared understanding). Further, the second party must have reasonably relied on the clear and unequivocal communication (or shared understanding). And finally, the first party must now seek to resile from its clear and unequivocal communication (or shared understanding), and it must be unconscionable and unjust for that party to go behind the convention or understanding.
The judge said that there were several reasons why such an estoppel could not arise here. Firstly, in saying that the “Previous Net Payments” were as set out in the Application, Gypcraft did not “impliedly represent there were no other notified but uninvoiced sums which had to be taken into account when assessing movement in the month.” Second, the estoppel was said to have had the effect that the parties had entered into a convention whereby Payment Notices could be given “out of time.” The judge said that there was no evidence or document which showed that there was such a convention. Whilst applications 20, 21 and 22 were all dealt with out of time, that did not give rise to a convention without more. There were a number of possible other reasons, including confusion or inefficiency.
Third, there was no evidence of reliance. To establish this, VCL would have to show that it fell into the habit of issuing their payment notices late because they were subject to some sort of convention. And finally, to understand whether it had been unconscionable and unjust on VCL to seek to go behind the convention if there was one, would require a full investigation of the facts – which cannot be done under Part 8.
Finally, VCL submitted that the document it issued on 7 February 2023 in response to Interim Payment Application 23 was, in fact, a pay less notice. The judge described this as an “ambitious submission”:
“The covering email referred in the subject box, in two places, to ‘PN 23’. The body of the email twice referenced the provision of a ‘Payment Notice.’ The attached document was headed ‘Payment Notice’ and stated that ‘the basis on which the sum stated in this Payment Notice has been calculated is set out in the attached breakdown’.”
The document was what it said it was; any “other reading of the document would be entirely artificial.” The judge concluded that:
“it would, in my view, entirely undermine the Act and the Sub-Contract if what the parties clearly intended at the time to be a Payment Notice could somehow retrospectively be converted into a Pay Less Notice.”
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