Roundup of payment case law in the construction industry in 2025

This case is a reminder that the courts will look to the substance of the relevant correspondence and documents to determine which notices have been issued and when, and that it is important to do this for the whole payment process. In assessing the facts of this particular case, the Technology and Construction Court (TCC) highlighted the following principles:

• One notice cannot operate as both a payment notice and a payless notice, but both can be served simultaneously and under the cover of the same email or letter.
• A payless notice can – in a sense – be validly served before a payment notice, as the TCC reminded us that an interim payment application can constitute a payment notice in default if the paying party fails to serve a payment notice. Therefore, a payless notice served after the date of an interim payment application can be valid (even if it is served during the period within which a payment notice could still be issued by the paying party), provided that no payment notice is actually served so that the interim payment application becomes the payment notice in default from the date that it was issued.

An interesting part of this case looked at whether, in Part 8 proceedings, estoppel by convention could be found so that payment notices could be validly given out of time. In reviewing the relevant legal ingredients of estoppel by convention from previous caselaw, the TCC found that on the facts there was insufficient evidence of such an estoppel between the parties in this instance. For example, whilst 3 payment applications were dealt with out of time, this could equally be because of confusion or inefficiency, rather than establishing a convention. Moreover, there was also no evidence of reliance; to establish this it would have had to have been shown that Vision Construction Ltd fell into the habit of issuing its payment notices late because it was subject to a convention. The TCC also indicated that it would be difficult to establish all elements of estoppel by convention in Part 8 proceedings given that elements of estoppel can require a fuller investigation of the facts which is unsuitable for such proceedings. 

In this case, it was held that a series of WhatsApp messages constituted a valid construction contract as the essentials were present and the Scheme filled the gaps in the payment provisions on a piecemeal basis as required. The TCC also looked at whether the contractor's invoices were payment notices or applications for payment that could be payment notices in default. As part of this, the TCC agreed that there is no need for a mathematical breakdown to be included in a payment application, as long as the basis of the sum is still clear, and this will be a question of fact and degree to be looked at in the context of the matter.

This case affirmed the long-standing principle that if neither a valid payment notice or payless notice has been served, the sum applied for in a valid payment application becomes the sum due and must be paid. In such circumstances, a party who has not paid the notified sum is not entitled to commence a true value adjudication until it has paid such sum. Whilst usually a responding party cannot recover a separate monetary award, the TCC confirmed that, in this context where a party had commenced a true value adjudication without having paid the notified sum, the adjudicator had jurisdiction to make an award of the notified sum in favour of the responding party. To do otherwise and require the responding party to commence another adjudication to recover a sum that has already been determined as due, would be "contrary" to the policy of both the Construction Act and the Scheme "to improve cash flow and encourage the rapid, but temporary, resolution of disputes". Any further dispute as to the amount due was said to be for further legal proceedings and not for adjudication. 

In this case, the construction contract in question did not contain any payment terms as required by the Construction Act and so the payment provisions from the Scheme were implied into the contract. The dispute between the parties was as to whether an application by Lapp Industries Ltd for £120,000 inclusive of VAT on account was a valid interim payment application in accordance with the Scheme.  In assessing this, the TCC considered how Lapp Industries Ltd made an assessment of the amount due in the application as required by the Scheme, thereby setting "an adequate agenda for an adjudication as to the true value of the works" and that the fact that Lapp Industries Ltd then went on to only request a payment of a lesser amount on account did not invalidate the application. Furthermore, the TCC held that an interim payment application can still be valid even if it includes an incorrect due date and/or final date for payment, as the other party could simply respond to correct any such errors. Such analyses emphasise, as stated in the case, that courts are to take a "commonsense" approach to payment notices and avoid adopting an "unnecessarily restrictive interpretation" of the same.  

The TCC was asked to determine whether a payless notice was valid, irrespective of its ruling on other matters impacting the enforcement of the adjudicator's decision. The TCC recounted principles from the authoritative caselaw, making clear that construction of notices must be approached objectively in the relevant context and that a court will not look to find reasons to render a notice invalid. On the facts, the payless notice contained 11 bullet points identifying which elements of the payment application were not accepted and why, even if the reasoning was brief. These bullet points were sufficient to show the basis on which the sum in the payless notice had been calculated and it was said that a payless notice does not have to set out a mathematical calculation to be valid as this would take an overly prescriptive approach to the required contents of a notice.