A Lidl clarification - payments made under a construction cannot be conditional on the provision of invoices.

Here, the court specifically upheld the previous comments made in Rochford Construction Limited v Kilhan Construction Limited [2020] EWHC 941 (TCC) and confirmed that for the purposes of the Act[1], while a due date can be fixed to an event (such as an invoice or notice) the final date for payment has to be a set period of time following the due date and cannot be fixed to an event or mechanism.

Background

Lidl engaged 3CL under a framework agreement for industrial refrigeration and air-conditioning works on Lidl's supermarkets.

A dispute arose concerning an interim payment under the first order for works arising from that framework. The payment schedule set out that the final dates for payment would be:

"21 days following:

1. the Due Date; or
2. receipt of the Contractor's valid VAT invoice […]

whichever is the later."

Lidl disputed 3CL's 19th interim application for payment (AFP19) on the basis that it had not provided all the contractually mandated information, including the VAT invoice. 3CL maintained that LIDL had not raised the issue of non-provision of the relevant information previously and had valued and paid sums against the previous 18 applications for payment. The dispute was referred to an adjudication which was determined in 3CL's favour.

Lidl issued part 8 proceedings seeking various declarations regarding the adjudicator's decision including the proper interpretation of the contract. 3CL also issued Part 7 proceedings to enforce the adjudication decision against Lidl. Lidl's Part 8 declarations were rejected by the Court and the adjudication decision was enforced.

The Decision

Much of the judgment turns on the distinct wording of the contract, however, there are several noteworthy points.

Competing Part 7 and Part 8 Claims

Davies J summarised the Court's approach when faced with the competing Part 7 and Part 8 claims relating to an adjudication decision. This includes the order in which the Court will address the issues before it and the effort that it will make to hear the arguments on the same day, or the approach to be taken if this is not possible.

Estoppel by Convention

The Court also examined whether the parties' conduct in relation to previous applications for payment may give rise to an estoppel by convention defence, where a party has not strictly complied with the contractual requirements. The Court cited the legal principle of estoppel by convention as set out in Amalgamated Property Company v Texas Bank [1982] 1 QB 84 (CA):

" Where parties to a transaction proceed on the basis of an underlying assumption on which they have conducted their dealings between them, neither will be allowed to go back on that assumption when it would be unfair or unjust to do so."

This principle was applied to the issue of whether the AFP19 was or was not valid. The Court held that Lidl could not rely on the terms of the contract, whereby 3CL were required to provide certain documents along with its application for payment, as the parties had been proceeding on the underlying assumption that the documents specified in the contract were not required in order for an application for payment to be valid. Lidl's reliance upon the no waiver provision of the contract was also rejected as the Court confirmed that waiver and estoppel are two separate legal principles.

Determination of the Final Date for Payment

The Court also held that a clause which made the final date for payment dependant on the submission of a VAT invoice did not comply with the requirements of the  Act, meaning that the relevant provision of the Scheme for Construction Contracts replaced this offending clause. In doing so, the court followed the obiter comments of Cockerill J in Rochford, that a due date can be fixed by reference to an invoice or notice, but not the final date for payment.

The main point is that Section 110 of the Construction Act sets out how the due date and final date for payment are calculated. In relation to the due date, it requires every construction contract to provide an adequate mechanism for determining what payments become due under the contract and when, which allows a fairly wide discretion for negotiation between the parties. However, the final date for payment does not describe 'any adequate mechanism' but states that the contract must provide for a final date for payment in relation to any sum which becomes due. Further, the parties are free to agree how long the period is to be between a date on which the sum becomes due and the final date for payment. The only freedom that parties have in determining the final date for payment, therefore, is how long after the due date this falls. No other requirement, such as receipt of a VAT invoice, can be inserted as this will fall foul of the Act and be replaced by the Scheme.

Take away

This is a welcome judgment which places the obiter comments of Cockerill J in Rochford on a clear footing in terms of its binding authority and removes any inconsistencies with the associated case law.  

Parties should be wary of their existing contracts if the final date for payment is set by reference to the provision of a VAT invoice, or any other information, to the employer.. It is now clear that parties will be required to comply with the rules in Rochford going forward.

[1] Section 110 of the Housing Grants, Construction and Regeneration Act 1996 ("the Act")