Court issues a timely reminder on the importance of complying with contractual notice deadlines

A recent decision of the Technology and Construction Court (TCC) in Vision Construct Ltd v Gypcraft Drylining Contractors Ltd reinforces the importance for those involved in payments under construction contracts to ensure the contract is strictly complied with in relation to the timing of issuing payment and pay less notices.

Facts of the case

Gypcraft Drylining Contractors Limited (Gypcraft) was employed as a subcontractor by the main contractor, Vision Construct Limited (Vision). The subcontract, a Joint Contracts Tribunal (JCT) Design and Build Sub-Contract (2016 Edition), contained an amendment to the payment mechanism and provided for a variety of deadlines corresponding to each payment cycle.

Gypcraft issued a timeous interim payment application under the subcontract. However, Vision submitted a late payment notice for only part of the sum claimed in Gypcraft’s payment application and did not serve a pay less notice.

Vision did not pay the sum specified in the payment application, so Gypcraft referred the matter to adjudication. The adjudicator found that Gypcraft was entitled to a payment of £217,000 from Vision, the full amount claimed in the payment application.

Vision then sought to overturn the adjudicator’s decision and raised an action seeking the court’s declarations in relation to:

The adequacy of the payment mechanism in the subcontract
Whether Vision could rely on a course of conduct where late payment notices had been accepted in the past
The ability to treat a payment notice as a pay less notice

The Court’s decision

The three arguments advanced by Vision were rejected by the court, for the following reasons.

Adequacy of payment mechanism

Vision argued the bespoke payment mechanism provided for in the subcontract did not contain an adequate mechanism for contractual interim payment.

The basis for this argument was that the subcontract did not specify an “Interim Valuation Date” as provided for under the standard form and instead used bespoke terminology (“Sub-Contractor Submission Valuation Date”) and a process which varied from the standard wording. If this argument had been successful, the default provisions in the Scheme for Construction Contracts 1998 would have applied instead of the bespoke contractual scheme.

The court was unsympathetic to this argument and stated it would be “perverse and uncommercial” to uphold it. The subcontract contained an adequate and commercially workable scheme for payment, and the use of different terms than those in the standard form JCT contract did not invalidate it.

Reliance on a prior ‘course of conduct’

Vision tried to assert that there was a prior course of conduct (in English law, ‘estoppel by convention’), arguing Gypcraft had accepted late payment notices issued in response to previous payment applications, which created a shared understanding that they would accept late notices in future. If that argument had been successful, Gypcraft would have been prevented from rejecting Vision’s late notice on this occasion.

The court disagreed. Vision would have had to prove both a shared assumption that late notices were acceptable, and that this assumption had been relied on to their detriment. Vision did not have enough evidence to convince the court that there had been a shared assumption or convention that late payment notices would be accepted and that this is why Vision issued its previous notices late. The court held that the past situation was equally consistent with confusion, inefficiency, or other explanations.

Payment notice or pay less notice?

Vision argued the document labelled “Payment Notice” could also be treated as a pay less notice. However, the court found that the notice was clearly intended to be a payment notice and it would be artificial to retrospectively interpret it as a pay less notice. It would also undermine the clear wording of the subcontract and the underlying legislation. In any event, it would be a high bar to overturn the clear wording of the subcontract and statute.

Key takeaways

The decision is a reminder that the timing of notices is critical and it is crucial to comply with contractual deadlines as they will be strictly followed by the courts in a dispute scenario. There can be severe consequences in failing to do so, not least potential liability for the entire amount claimed in a payment application.
The lateness of prior applications and notices will not easily establish a course of conduct or convention to excuse the lateness of a subsequent notice; there is a high bar to establishing estoppel by convention. If the parties would prefer to alter contractual payment deadlines, this should be expressly agreed to and carefully documented (ideally, formally and as an amendment to the contract).
It is difficult to retrospectively re-characterise a document labelled as a payment notice as a pay less notice to circumvent the payment provisions of a construction contract.

This article was co-authored by Trainee Ruaridh Brown.

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