Vision Construct Limited v Gypcraft Drylining Contractors Limited

Adrian Williamson KC: Introduction

1. In these Part 8 proceedings, VCL seek declarations in relation to the proper construction of a contract payment mechanism used by the parties under their subcontract dated 12 November 2020 (“the Subcontract”). Gypcraft resist the grant of these declarations.

2. These issues arise as follows: i) Gypcraft succeeded before an Adjudicator in relation to the proper analysis of Payment Cycle 23 between the parties, which took place over January and February 2023; ii) By a Decision made on 12 November 2024, the Adjudicator decided that VCL should to pay Gypcraft £216,947.75 plus interest on the basis that: (a) Gypcraft had served a valid Interim Payment Application 23; (b) VCL had failed to serve either a Payment Notice or a Pay Less Notice in response as required; and (c) therefore Gypcraft’ s Interim Payment Application 23 was payable in the amount applied for, in accordance with section 110 B(4) of the Housing Grants, Construction & Regeneration Act 1996 (“ the Act ”); iii) VCL have paid these sums but contend that the declarations sought, or any of them, will invalidate the Decision, so that this sum will fall to be repaid.

3. VCL’s case is summarised as follows in Mr Bowling’s skeleton argument: (1) The Subcontract fails to adequately identify a relevant “Interim Valuation Date” for Payment Cycle #23, meaning that clause 4 must be substantially re-written by Part II of the Scheme. The necessary modifications to clause 4 mean there was no right in Gypcraft to submit Interim Payment Application #23 before that (new, statutorily imposed) due date. This argument is not pleaded, but it requires no disputed evidence. It is purely a matter of submission to be argued on the construction of the documents. (2) There was a course of conduct between the parties under which a convention arose that Gypcraft would accept VCL’s Payment Notice #23 out of time. This involves looking how the parties treated the other payment cycles. VCL attaches to this skeleton a table which demonstrates that for almost the entirety of 2021, 2022 and 2023 (that is, both before and after Payment Cycle #23 in January 2023) Gypcraft accepted Payment Notices issued out of time; issued invoices seeking payment of VCL’s notified sum; and took those net sums without complaint or any meaningful, clear reservation. Gypcraft are therefore estopped by convention from denying that Payment Notice #23 was effective to set the notified sum for that payment cycle. All of the evidence on this point comes from the documents; it does not require live evidence. (3) Lastly, if VCL’s Payment Notice #23 was out of time to serve as a payment notice, it was (indisputably) nevertheless in time to serve as a Pay Less Notice. It contained all the relevant information to communicate to Gypcraft that VCL intended to pay less than the amount applied for, with a breakdown of why that was. That being all the Subcontract and the HGCRA96 requires, there is no reason not to read the Payment Notice as a Pay Less Notice. Again, this is a pure point of construction on the documents.

4. I deal with the issues as follows: a) The contractual and statutory background; b) Procedural matters; c) The relevant facts; d) The Interim Valuation Date; e) Estoppel; f) Payment Notices and Pay Less Notices; g) Conclusions. A. The contractual and statutory background

5. The parties entered into the Subcontract dated 12 November 2020. This was executed by Gypcraft on 28 June 2021. The Subcontract incorporated, amongst other things, the JCT DBSub/C 2016 standard form.

6. The Subcontract also incorporated “Numbered Document 6”. Numbered Document 6 set out agreed interim payment dates necessary to make clause 4’s interim payment regime work. However, Numbered Document 6 only covered an 11 month period from 3 April 2020 – 2 February 2021. Since Gypcraft’s works on site were agreed to start no earlier than 1 December 2020 and no later than 31 January 2021, Numbered Document 6 was virtually redundant as at the date of the Subcontract.

7. VCL therefore issued to Gypcraft a series of updated schedules, with further dates as the works progressed. The relevant Schedules, with fresh dates covering subsequent periods, were: i) The 2021/22 Schedule; ii) The 2022/23 Schedule; iii) The 2023/24 Schedule.

8. The Schedules were all in similar terms. They contained, for each payment cycle, columns giving dates for: i) Sub-Contractor Submission Valuation Date; ii) DUE date (sic) ; iii) Accounts to issue Payment Notice by; iv) Payless Notice to be issued by; v) Final date for Payment.

9. Footnote 4 stated that “all Applications for Payments and Invoices are to be issued to [email address] by end of business on the Valuation date above”.

10. The JCT Standard Form set out the following relevant terms: i) Clause 4.6.1 provided that the monthly due dates for interim payments were to be 21 days “after the relevant Interim Valuation Date”; ii) Clause 4.6.3 stated that “… the Sub-Contractor may make a Payment Application in respect of an interim payment to the Contractor…not later than 4 days prior to the Interim Valuation Date” ; iii) Clause 4.7.1, as amended, set the final date for payment as 21 days after the due date; iv) Clause 4.7.2 required that “Not later than 5 days after the due date in each case the Contractor shall give a notice to the Sub-Contractor which shall specify the sum that he considers to be or have been due at the due date and then basis on which that sum has been calculated (a ‘Payment Notice’) ...” v) Clause 4.7.3 provided that “Subject to any Pay Less Notice given by the paying party under clause 4.7.5, the paying Party shall pay the sum specified in the Payment Notice…on or before the final date for payment. If the Contractor fails to give a Payment Notice…in accordance with clause 4.7.2, but a Payment Application has been or is then made, the Contractor shall, subject to any Pay Less Notice given under clause 4.7.5, pay the sum specified in the Payment Application”; vi) Clause 4.7.5.1 stated that “Where the Contractor intends to pay less than the sums stated in the Payment Notice…. the Party by whom the payment is stated to be payable shall not later than 1 day before its final date for payment give the other Party notice of that intention in accordance with clause 4.7.6 (a ‘Pay Less Notice’). Where a Pay Less Notice is given, the payment to be made on or before the final date for payment shall not be less than the amount stated in it as due.” vii) Clause 4.7.6 provided that “A Pay Less Notice given by either Party shall specify the sum he considers to be due to the other Party at the date the notice is given and the basis on which that sum has been calculated.”

11. The above regime, which is intended to give effect to the Act , was accurately expressed pictorially by Mr Bowling in his skeleton argument as follows, using 5 th January as an example: -4d: IPA IVD +12d: DD +5d: PN +15d: PLN +1: FDFP 1 Jan 5 Jan 17 Jan 22 Jan 6 Feb 7 Feb  21d 

12. The Act contains the following relevant provisions: 110APayment notices: contractual requirements (1)A construction contract shall, in relation to every payment provided for by the contract— (a)require the payer or a specified person to give a notice complying with subsection (2) to the payee not later than five days after the payment due date, or (b)require the payee to give a notice complying with subsection (3) to the payer or a specified person not later than five days after the payment due date. (2)A notice complies with this subsection if it specifies— (a)in a case where the notice is given by the payer— (i)the sum that the payer considers to be or to have been due at the payment due date in respect of the payment, and (ii)the basis on which that sum is calculated; (b)in a case where the notice is given by a specified person— (i)the sum that the payer or the specified person considers to be or to have been due at the payment due date in respect of the payment, and (ii)the basis on which that sum is calculated. (3)A notice complies with this subsection if it specifies— (a)the sum that the payee considers to be or to have been due at the payment due date in respect of the payment, and (b)the basis on which that sum is calculated… 110BPayment notices: payee's notice in default of payer's notice (1) This section applies in a case where, in relation to any payment provided for by a construction contract— (a)the contract requires the payer or a specified person to give the payee a notice complying with section 110 A (2) not later than five days after the payment due date, but (b)notice is not given as so required. (2) Subject to subsection (4), the payee may give to the payer a notice complying with section 110 A (3) at any time after the date on which the notice referred to in subsection (1)(a) was required by the contract to be given. (3) Where pursuant to subsection (2) the payee gives a notice complying with section 110 A (3), the final date for payment of the sum specified in the notice shall for all purposes be regarded as postponed by the same number of days as the number of days after the date referred to in subsection (2) that the notice was given. (4) If— (a)the contract permits or requires the payee, before the date on which the notice referred to in subsection (1)(a) is required by the contract to be given, to notify the payer or a specified person of— (i)the sum that the payee considers will become due on the payment due date in respect of the payment, and (ii)the basis on which that sum is calculated, and (b) the payee gives such notification in accordance with the contract , that notification is to be regarded as a notice complying with section 110A (3) given pursuant to subsection (2) (and the payee may not give another such notice pursuant to that subsection)” (underlining for emphasis) B. Procedural matters

13. As mentioned above, these are Part 8 proceedings. Two points arise from this.

14. The first is that CPR Part 8 is only appropriate where a claimant “ seek [s] the court’s decision on a question which is unlikely to involve a substantial dispute of fact. ” Claims involving estoppel are generally not suitable for Part 8. In ING Bank NV v Ros Roca SA the Court of Appeal explained at [77] that: [2012] 1 WLR 472 , “In general Part 8 proceedings are wholly unsuitable for the trial of an issue of estoppel. Once such a claim is disputed, save in exceptional cases, the proceedings will cease to comply with CPR r 8.1(2)(a), since they will cease to be proceedings in which the parties do not seek the court’s decision only on questions which are unlikely to involve a substantial dispute of fact. A disputed claim of estoppel should be carefully pleaded.”

15. Secondly, VCL’s principal argument (the “Interim Valuation Date” point) was not pleaded in the Amended Details of Claim and emerged for the first time in Mr Bowling’s skeleton argument, served on the Friday before the hearing. I indicated to the parties that they should address me both on whether this new case should be allowed, and the merits of the case.

16. Counsel duly did so, and Mr Bowling applied to reamend the Details of Claim during the course of his submissions. Mr Frampton, at least to some extent, resisted this application, but fully engaged with the new case. It seems to me that it is appropriate to permit VCL to run this new case. It raises matters of law on the documents, and Gypcraft have had a full opportunity to deal with the case, including the submission of a supplemental skeleton. I therefore grant permission to VCL to make the proposed reamendments, on the usual terms as to costs. C. The relevant facts

17. On 14 th September 2022, Gypcraft issued payment application 20 seeking payment of circa £90,000. This sum was arrived at by putting forward a “net valuation” of circa £2m and deducting “previous net payments” of £1.912m. On 6 th October 2022, VCL issued a Payment Notice showing a sum due of only about £32,000. This document described the sum of £1.912m as “amount previously due”.

18. A similar pattern obtained for applications 21 and 22 in October and November 2022. None of the Payment Notices were issued in accordance with the contractual timetable described above.

19. On 16 January 2023, Gypcraft issued its interim application for payment no. 23. In Application 23, Gypcraft sought payment of the sum of £342,385.52.

20. On 7 February 2023, VCL purported to issue a payment notice stating that the sum due to Gypcraft was £125,437.77. VCL paid that sum.

21. The 7 February Document, called in the covering email a “ Payment Notice ” and stated on its face to be a “ Payment Notice ”, was not issued on time. It was issued 5 days after the payment notice date. VCL did not serve a separate payless notice.

22. In October 2024, Gypcraft started an adjudication seeking, as its primary position, the outstanding sum under Application 23 (£216,947.75) as a notified sum.

23. The Adjudicator found inter alia that: i) The 7 February Document was invalid. ii) Gypcraft was, therefore, entitled to the outstanding sum of £216,947.75 as a notified sum for Application 23. iii) Gypcraft was entitled to interest up to the date of his Decision of £26,045.76 (£24,339.75 + £1,706.01) and continuing at a daily rate of £41.61. D. The Interim Valuation Date

24. As finally formulated by reamendment, this contention was put as follows: “10A. The 2022-23 Payments Schedule: (a) Was an instruction given by VCL under, and not a variation to the Subcontract. (b) Had therefore to be read subject to the Subcontract, and in particular subject to clause 4 of the Subcontract. (c) Did not set out a clear and transparent regime setting out what sums became due and when for the purposes of clause 4 of the Subcontract. In particular, the 2022-23 Payments Schedule did not set out any (alternatively any clear and unambiguous) Interim Valuation Dates for the purposes of continuing the interim payment regime beyond the dates set out in Numbered Document 6 to the Subcontract, meaning that the Scheme for Construction Contracts (England & Wales) Regulations 1998 (SI 649/1998) applied to fix the relevant (valuation) periods instead. That in turn meant that (so long as the 2022-23 Payments Schedule applied) there was no relevant right under the Subcontract to submit a contractually-compliant application pursuant to clause 4.6.3.1 as had otherwise been the case; (d) Alternatively, contemplated Gypcraft’s interim payment applications were to be submitted on the interim valuation date, and not 4 days in advance of it, meaning that any applications submitted in accordance with the 2022-23 Payments Schedule would not be submitted in accordance with the Subcontract; (e) Therefore on either basis the Subcontract at all material times (whether as amended, varied or supplemented by the 2022-23 Schedule) was not (or was no longer) a contract which required or permitted Gypcraft to submit an application within the meaning of s110 B (4) of the Housing Grants, Construction & Regeneration Act 1996 .”

25. As an initial observation, this argument is very technical and would have the practical result that the payment regime cannot work as, broadly speaking, the Act and the Sub-Contract intended. That does not necessarily mean that the argument is wrong, but the Court is, in my view, entitled to approach this part of the case with some scepticism. As Coulson LJ observed in Bennett Construction Ltd. v CIMC MBS Ltd. [2019] BLR 587 at [42]: “ the courts expect the parties to adopt business common sense as to the arrangements for invoicing and payment.”

26. What this argument really amounts to is the contention that it was not possible, reading together clause 4 and the 2022/3 and subsequent Schedules, for Gypcraft to give “such notification in accordance with the contract” as contemplated by section 110 B(4)(b) of the Act .

27. I do not agree.

28. As to the first way of putting the case – that the Payments Schedule did not set out any (alternatively any clear and unambiguous) Interim Valuation Dates – this seems to me to be an impossible reading of the Schedule. In relation to the application with which the Adjudicator was concerned, the Schedule stated in terms that: i) Sub-Contractor Submission Valuation Date was 16 th January; ii) DUE date was 28th January; iii) Accounts to issue Payment Notice by 2 nd February; iv) Payless Notice to be issued by 16 th February; v) Final date for Payment was 17 th February. (all dates in 2023)

29. This was clearly and methodically giving effect to the dates and regime contemplated by clause 4. It would be perverse and uncommercial to hold that the regime could not work as intended because the words “Sub-Contractor Submission Valuation Date” were used rather than “Interim Valuation Date”. Furthermore, it is clear from footnote 4 the expression “Sub-Contractor Submission Valuation Date” does not refer to Applications for Payments, but to the valuation of those applications.

30. The second way this case is put – that interim payment applications were to be submitted on the interim valuation date, and not 4 days in advance of it, so that they would not be submitted in accordance with the Subcontract – fails for a number of reasons: i) Note 4 does not say that Applications for Payment were to be issued on the Valuation Date but “ by end of business on the Valuation date above”. Reading this provision with clause 4.6.3.1, as one should, the Sub-Contractor would have to comply with both obligations: a compliant Payment Application submitted 4 days prior to the Interim Valuation Date would also comply with the Schedule; ii) Further or alternatively, the Payments Schedule was either a contractual document or an instruction/direction given under the Sub-Contract. Under clause 3.4 of the Sub-Contract, VCL were empowered to issue directions and by clause 3.5 Gypcraft were obliged to comply therewith. It would be a strange result if Gypcraft, acting in compliance with what the Adjudicator held to be “an instruction and/or direction” issued by VCL were not, in making payment applications as required, acting “in accordance with the contract”. The Adjudicator so held at para 25 of the Decision: neither party has sought to challenge this aspect of the Decision.

31. For these reasons, I reject the Interim Valuation date argument. E. Estoppel

32. As I have already observed, this is an unusual (albeit not impossible) argument to raise in the evidence free zone of Part 8.

33. This case is finally expressed as follows at para 30(d) of the Reamended Details of Claim: “(d) The estoppel by convention referred to above is found in, and/or 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 (including for the avoidance of doubt the subsequent interim payment applications) 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). VCL relied on that convention when it took up, assessed and valued Gypcraft’s applications submitted on that basis, such that it would be unconscionable for Gypcraft to withdraw from that convention with retrospective effect and for Gypcraft to claim payment of its interim payment application 23 on the basis that that sum has self executed in the amount claimed.”

34. The relevant legal ingredients of this type of estoppel were set out in Mears Limited v Shoreline Housing Partnership Limited at [49]: [2015] EWHC 1396 (TCC) , 160 ConLR 157 “(a) An estoppel by convention can arise when parties to a contract act on an assumed state of facts or law. A concluded agreement is not required but a concluded agreement can be a ‘convention’. (b) The assumption must be shared by them or at least it must be an assumption made by one party and acquiesced in by the other. The assumption must be communicated between the parties in question. (c) At least the party claiming the benefit of the convention must have relied upon the common assumption, albeit it will almost invariably the case that both parties will have relied upon it. There is nothing prescriptive in the use of ‘reliance’ in this context: acting upon or being influenced by would do equally well. (d) A key element of an effective estoppel by convention will be unconscionability or unjustness on the part of the person said to be estopped to assert the true legal or factual position. I am not convinced that ‘detrimental reliance’ represents an exhaustive or limiting requirement of estoppel by convention although it will almost invariably be the case that where there is detrimental reliance by the party claiming the benefit of the convention it will be unconscionable and unjust on the other party to seek to go behind the convention. In my view, it is enough that the party claiming benefit of the convention has been materially influenced by the convention; in that context, Goff J at first instance in the Texas Bank case described that this is what is needed and Lord Denning talks in these terms.”

35. There are several reasons why such an estoppel could not arise in the present case.

36. Firstly, all Gypcraft “represented” to VCL was that “Previous Net Payments” were as set out in the Application. This was no more than a statement of fact. Gypcraft did not “impliedly represent[ed] there were no other notified but uninvoiced sums which had to be taken into account when assessing movement in the month”. An implied representation would be a most unusual basis for this type of estoppel, and this aspect of the case seems, with respect, to be an ingenious lawyer’s gloss upon the facts, rather than a shared assumption.

37. Secondly, the estoppel is said to have the effect that the parties entered into a convention whereby Payment Notices could be given “out of time”. But there is simply no evidence or document which shows that there was such a convention. It is true that applications 20,21 and 22 were all dealt with out of time, but this does not give rise to a convention without more. It is equally consistent with confusion, inefficiency or a number of other possible explanations.

38. Thirdly, there is no evidence of reliance. To establish this, VCL would have to show that they fell into the habit of issuing their Payment Notices late because they were subject to some sort of convention.

39. Finally, I do not understand how a court could reach the conclusion that it was unconscionable and unjust on VCL to seek to go behind the convention, if there was one. That would require a full investigation of the facts and is an undertaking inherently unsuitable for Part 8.

40. For those reasons, I reject the estoppel case. F. Payment Notices and Pay Less Notices

41. VCL submit on this aspect that the document which they issued on 7 th February 2023 in response to application 23 was in fact a Pay Less Notice such that, in accordance with clause 4.7.5.1, the payment to be made on or before the final date for payment would not be less than the amount stated in it as due.

42. This is 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”.

43. Applying the helpful summary of the approach to contractual notices set out at para 47 of Advance JV v Enisca Ltd [2022] EWHC 1152 (TCC) , 202 Con. L.R. 219, I have no doubt that this document was what it said it was: a Payment Notice. Any other reading of the document would be entirely artificial.

44. Furthermore, 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. As Coulson J (as he then was) observed in Grove Developments Limited v S&T (UK) Limited [2018] BLR 173 at [29]: “In my view, that general guidance applies equally to a payment notice and a pay less notice. Each has to make plain that it is, respectively, a payment notice or a pay less notice. Each has to clearly set out the sum which is said to be due and/or to be deducted, and the basis on which that sum is calculated. Beyond that, the question of whether or not it is a valid notice in accordance with the contract is a matter of fact and degree.” G. Conclusions

45. VCL are not, therefore, entitled to the Part 8 declarations which they seek.

46. I invite Counsel to seek to agree consequential matters, failing which a short remote hearing will be convened to deal with such matters.