Key takeaways
Final date for payment
The final date for payment must be a fixed period after the due date.
Complex payment mechanisms
Specialist advice should be obtained during negotiations.
Stay of execution
The court provides a useful reminder of the relevant legal principles as regards a stay of execution in adjudication enforcement proceedings.
In the recent case of Deerns UK Ltd (Deerns) -v- VDC LHR11 Ltd (VDC) [2026] EWHC 1509 (TCC), the court considered when final dates for payment will comply with the statutory regime under the Housing Grants, Construction and Regeneration Act 1996 (as amended) (the Act).
The facts
VDC appointed Deerns to provide engineering consultancy services in relation to a development at Chandos Park Estate, London (the Contract).
Deerns issued two applications for payment, nos. 7 and 8 (AFP7 and AFP8).
VDC served payment notices certifying the sum of £555,855.60 in respect of AFP7, and £354,616.11 in respect of AFP8.
VDC also served pay less notices in respect of each payment notice.
Deerns alleged that the Contract failed to provide a final date for payment, contrary to section 110(1)(b) of the Act and that the sums certified by way of the payment notices, totalling £910,501.71, were payable.
The law
Section 110(1) of the Act provides as follows:
‘(1) Every construction contract shall
(a) provide an adequate mechanism for determining what payments become due under the contract, and when and
(b) provide a final date for payment in relation to any sum which becomes due.
The parties are free to agree how long the period is to be between the date on which a sum becomes due and the final date for payment.’
The court cited the Judgments in Rochford Construction Ltd v Kilhan Construction Ltd [2020] EWHC 941 (TCC) and Lidl Great Britain Ltd v Closed Circuit Cooling Ltd [2023] EWHC 2243 (TCC), [2023] BLR 629. Both cases establish that the final date for payment must be a fixed number of days from the due date (as opposed to some other mechanism or event).
Where a contract does not provide for a fixed period between the due date and the final date for payment, it is deemed to have failed to provide a final date for payment for the purposes of s.110(1) of the Act.
In such a circumstance, The Scheme for Construction Contracts (England and Wales) Regulations 1998 (the Scheme) would apply and import a final date for payment into the Contract. The final date for payment under the Scheme is 17 days from the relevant due date (as opposed to the period of 30 days under the Contract between Deerns and VDC).
If Deerns was correct, and the Contract did not provide a final date for payment, VDC’s pay less notices were served out of time and ineffective. The sums certified in the payment notice would be payable to Deerns.
If VDC was correct, then both of its pay less notices were served in time, and Deerns would not be entitled to payment of the payment notice sums.
The payment mechanism
Pursuant to the Contract, VDC was to pay the Fee to Deerns in instalments, as stated in Schedule 1 to the Contract. Schedule 1 was titled, ‘Proposed Schedule of Valuation Dates’, and envisaged 19 interim valuation cycles.
Deerns was required to submit an invoice on or before the relevant application date listed in the Schedule.
Clause 7.2 provided that the due date for payment of each instalment was the date specified in Schedule 1.
As to the final date for payment, clause 7.2 provided that it, ‘…shall be 30 days after the relevant due date save that if the Consultant invoice is issued late, the final date for payment shall be postponed by the same number of days by which the Consultant’s invoice is late’.
The Schedule provided a list of final dates for payment, and included the words, ‘(c + 30 days)’ – ie Column C, the due date, plus 30 days.
The issues
1. Did the Contract provide an Act-Compliant final date for payment?
Deerns alleged that the provision in clause 7.2, which postponed the final date for payment in the event of a late application for payment, did not comply with the Act, as it linked the final date for payment to the payment application date (which could vary), as opposed to being a fixed number of days after the due date.
VDC contended that the Schedule to the Contract provided a mechanism for calculation the various relevant dates. It considered that the final date for payment was always 30 days after the due date, but that the due date would depend on the date upon which the payment application was issued (ie the due date would be seven days after the date of the payment application).
2. Estoppel
VDC alleged that the parties had operated the Contract in a way which was, in fact, compliant with the Act, and that the parties had a common understanding thereof. It alleged therefore that Deerns was estopped from contending that the Contract was operated in a different way. Specifically, VDC contended that if Deerns submitted a late Payment Application, the parties treated that later application date as the Interim Valuation Date for the purposes of the Schedule and recalculated the subsequent dates accordingly.
Deerns denied that there was a common understanding as alleged by VDC.
3. Stay of execution
VDC contended that any award in favour of Deerns should be stayed. It contended that Deerns was insolvent, and that it had claims against it in the region of c£25m+. Accordingly, if it was required to pay the monies to Deerns and was subsequently successful on the true valuation or damages claim, then it would be unable to recoup the money.
The decision
1. Final date for payment
The Court did not accept VDC’s interpretation, namely that the due date was seven days after the date of the payment application date and the final date for payment was 30 days after the due date.
The Contract expressly provided for the final date for payment to be postponed in the event Deerns’ payment application was submitted late. By contrast, clause 7.2 provided that the due date was a ‘specified date’ as set out in the Schedule.
In the event of a late payment application, the relevant interim valuation date and due date remained unaltered. The final date for payment would however be postponed. Applying Rochford and Lidl, the Contract failed to provide a final date for payment as required by s.110(1) of the Act.
The relevant provision of the Scheme was therefore incorporated, meaning VDC’s pay less notices were served late and ineffective. VDC was liable to pay to Deerns the sums certified in its payment notices, £910,501.71.
Interestingly, VDC contended that to achieve the purposes of the Act the correct approach was to strike out the offending wording postponing the final date for payment in the event of a late invoice such that the final date for payment was 30 days from the due date. Whilst the court considered the argument held ‘considerable attraction’ this approach was rejected because the Court considered that: (i) ‘Parliament has placed limits on party autonomy in this context…Where they fail to provide a final date then Parliament has imposed a solution’ (i.e. the Scheme); and (ii) this approach ‘would involve imposing on the parties a regime different from that which they agreed…and different from that laid down in the Scheme…’.
2. Estoppel
The Court noted that the estoppel argument was advanced in ‘vague and unparticularised terms’. The documents relied on in the proceedings did not demonstrate that VDC acted on the basis of the alleged understanding. VDC did not explain how the common understanding arose or how it was communicated, let alone when and between whom such exchanges took place.
Whilst acknowledging that there was a ‘degree of informality’ in the parties’ dealings, an estoppel by convention was not demonstrated.
3. Stay of execution
The Court rejected VDC’s application for a stay, holding that Deerns was a going concern, and that VDC’s claims were, ‘a very long way off being established’. Further, Deerns’ financial position was not materially worse than it was at the time the parties entered into the Contract, and VDC’s failure to pay the sums due had played a significant part in Deerns’ financial difficulties.
Commentary
This case serves as a reminder that the Act provides minimum requirements as regards payment mechanisms in construction contracts. Specialist legal advice should be sought in the event parties prepare bespoke contracts or seek to amend standard form contracts (e.g. JCT, NEC).
Consideration should also be given as to use of payment schedules, any discrepancies between such schedules and the conditions of the contract, as well as in the event of any such inconsistency, which takes precedence.
Find out more about our Construction and Engineering team or contact us to discuss how we can help.
