CALL US FOR A FREE CONSULTATION: 0207 459 4037

Payment Obligation in Construction Contracts – Court provides clarity on payment date

Payment Application Disputes in Construction Contracts

Problem: In Lidl Great Britain Limited v Closed Circuit Cooling Limited t/a 3CL the Court had to consider whether reference a contractual requirement to submit a valid VAT invoice could determine the final date for payment.

Outcome: The Judge decided in this case that the obligation to make the final payment date dependent on receipt of a valid VAT invoice did not comply with the requirements of Section 110(1)(b) of the ‘Construction Act’, and there was an implied term that it would be paid within 17 days of the payment application.

When does payment obligation apply in Construction contracts?

Lidl, a well-known national retailer and 3CL, a contractor in the business of industrial refrigeration and air-conditioning, entered into a framework agreement which enabled the parties to enter into individual works orders, each of which constituted a separate contract. This framework agreement entitled 3CL to make interim payments following the achievement of defined milestones.

The relevant payment application in this case is the 19th such payment application (“AFP19”), in which 3CL sought payment of £781,986.22.

There were three major disputes between the parties:

  1. Lidl’s claimed that 3CL’s payment application was invalid due of its failure to comply with (a) the identification of the milestones achieved and amounts claimed against each; (b) failure to provide supporting photographs and insurance evidence; and (c) inadequate method of service
  2. In response to the payment application, Lidl valued the works at nil and maintained that it was a valid payment notice, while 3CL contends that it was not and that it was in reality an invalid pay less notice served without a prior payment notice
  3. The third major dispute concerns the compliance of the payment terms with the requirements of the Housing Grants, Construction, and Regeneration Act 1996 (as amended) (‘Act’), the contract made the final date for payment conditional upon 3CL’s delivery of a compliant VAT invoice.

The Adjudicator’s Decision

The adjudicator, Mr. Robert J. Davis rejected all of Lidl’s submissions as to the invalidity of AFP19 and as to the validity of PAY-7 and, thus, rejected Lidl’s defence that no sum was payable because the final date for payment had not arrived. He ordered Lidl to pay the sum applied for in AFP19 in full together with interest.

Can final date for payment be conditional upon the issuance of a VAT invoice?

In this case, the contract stated that the final date for payment was either (i) 21 days after the due date or (ii) the date of receipt of a VAT invoice. It was therefore Lidl’s argument that the final date for payment was conditional on a valid VAT invoice, whereas 3CL argued that this provision was contrary to the Act.

The Judge decided in this case that the obligation to make the final payment date dependent on receipt of a valid VAT invoice did not comply with the requirements of Section 110(1)(b) of the Act regarding dates for payment in construction contracts which provides that:

Every construction contract shall—

(a) provide an adequate mechanism for determining what payments become due under the contract, and when, and

(b) provide for 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.

In the circumstances, the Court held that the Scheme for Construction Contracts Regulations 1998 was implied, which would override the contractual mechanism for determining the final date for payment when a contraction contract does not comply with the Act. This provides that if the parties have failed to provide for the final date for payment of sums due in the construction contract pursuant to the Act, the Scheme provides that the final date is 17 days after the payment due date.

The Judgment

In the Judge’s view:

the only discretion … is for the parties to agree the period between the due date for payment and the final date for paymentIf it was open to a paying party to include a provision which required the fulfilment of some further condition between the due date for payment and the final date for payment, that would have the effect of driving a coach and horses through the wording and clear intention of this part of the Act”.

Comments from Expert Construction Dispute Lawyers

Parties entering into construction contracts should carefully review their construction contracts and carefully review any payment provisions, particularly given the current economic climate in the construction industry. Although it is common and indeed acceptable for an invoice to be part of the payment process, any provisions that specifically interlink the final date for payment to the provision of an invoice may be subject to challenge.

It is important to seek specialist legal advice to ensure that all essential pre-requisites have been met. If you wish to discuss your construction claim with our construction dispute lawyers, please do not hesitate to call us or complete our booking form below to schedule a Free Consultation or alternatively call us on 0207 459 4037.

Reviews

Karim Oualnan handled a contractual case to a successful resolution. Karim was very diligent, always providing great, honest advice in which Karim always put my best interests at the forefront of his suggestions during the case. He is very reliable, trustworthy and always on hand to help. I would highly recommend Karim.
I have no hesitation in recommending the services of Karim and his team. I had been banging my head against a brick wall after my bank forced the closure of my accounts and froze a substantial amount of my cash assets. Karim quickly reviewed all of the documentation relating to the matter and issued a letter before claim and formal...
We hired Karim for a commercial dispute, with a UK based entity that breached our P.O. terms. The difficulty with the case was that we have paid a down payment without much leverage to recover it. The supplier misled us forever 2 years and finally decided not to pay our down payment. However, with the support of the lead lawyer...
Very satisfied with the way that Karim Oualnan and his team took hold of a messy conveyancing professional negligence claim, and progressed it all the way through to an amicable settlement in just over 6 months. Professional, courteous, knowledgeable and also pragmatic with advice and strategy. I would not hesitate to recommend.
Karim offered me some advice regarding a lease issue. He was kind , courteous, knowledgable and above all really generous with his time and support . I would recommend Karim in a heartbeat for explaining things so clearly without patronising and for making me feel so at ease.
Karim is wonderful to work with, attentive, calmed and a knowledgeable professional. I appreciate his help a lot, he guided me in a way that not a lot of people does. Reliable and a great motivator.

Choose Excellence in Dispute Resolution

Our Mission

Our litigation solicitors have a proven track record of delivering successful outcomes for clients. Go Legal was founded to make exceptional lawyers accessible and solutions affordable.

Our lawyers and mediators have decades of experience and specialise exclusively in commercial litigation. Our lawyers have been described as “the best litigators in the country” & provide solutions to clients in the following areas of law:

karim sign

Karim Oualnan

Partner and Managing Director

Litigation Lawyer of the Year - Karim Oualnan

Our Story

Having worked more than a decade in law and fuelled by his passion for access to justice, Karim envisaged a different law firm – one that stood as a symbol of hope, fairness, and an unwavering dedication to justice. By providing legal services through a partnership with Go Legal and Spencer West, Karim has been able to create this vision.

Karim did not have a storybook beginning. His childhood echoed with challenges, where he witnessed his family and friends struggle with legal issues. It made him realise that there are individuals and businesses caught up in the complexities of the UK legal system who need reliable, affordable and technically astute lawyers to get results.

Our lawyers make a promise – we will work hard to achieve the best outcome for you. We are here to help!

Our Values

Our firm’s values ensure that we consistently exceed client expectations. We are:

  • Honest: Our lawyers are trusted by many clients
  • Generous: We are technically astute lawyers with compassion, & a genuine desire to help
  • Dedication: Our lawyers tackle each case with relentless dedication & work tirelessly to achieve a successful outcome
  • Innovative: We have access to technology & strategies not used by other law firms
  • Guardians: Our lawyers will guide you through every legal step, ensuring clarity & understanding at all stages

200+

Lawyers*

95%+

Success

20

Offices*

*through our exclusive partnership with Spencer West LLP

Our lawyers are regulated and members of:

Why instruct Go Legal

why-icon-6-6

Expertise

Our team of award-winning legal experts are renowned for their technical expertise, honesty and dependability. We prioritise customer satisfaction by providing personalised attention and ensuring that we consistently exceed our clients' expectations throughout.

why icon 2

Rapid Response​

We understand the urgency of legal matters and offer 24/7 support to clients. Whether you require immediate assistance with legal advice or representation, our team is always available to provide prompt and reliable support. We will create a Whatsapp group with you and your legal team once instructed if you have any out of hours questions throughout your litigation and dispute resolution case.

why icon 3

Fair and Transparent pricing

We provide honest estimates for our legal services at the very outset. We are often instructed on an hourly rate basis, but we can offer discounted fixed fee packages, and no-win no fee agreements. For further information, please see our Funding page which sets out some of the packages we may be able to offer clients.

fast litigation and dispute resolution lawyers

Fast & Reliable

Efficiency and dedication to our clients’ needs are the cornerstones of our practice. We have earned the appreciation and praise of clients and even our opponents by consistently meeting high standards and delivering exceptional results.

why icon 5

Qualified and Regulated

Our team consists of highly qualified and regulated legal professionals who possess extensive knowledge and experience in dispute resolution. You can trust that your legal matter will be handled by specialist and experienced lawyers who provide the highest level of service to achieve the best result for your case.

why icon 1

Customer Satisfaction Guarantee

We are so confident in our ability that we give our clients a service level guarantee. If you are not happy with the service we provide on your case, you can request a 10% discount on our invoice(s) no questions asked.

1. Book Free Consultation

2. Our Lawyers will call you

3. We will represent your best interests to success

Schedule a Free Consultation

Select Date & Time below
Maximum file size: 10 MB
error: Content is protected !!
Search
go-legal-white-logo

How can we help?

Resolving Payment Disputes: A Legal Guide for the UK Construction Sector

We are here to help you. Call us for your Free Consultation: 0207 459 4037

The Ultimate Guide to Construction Project Management: Legal Tips & Best Practices

We are here to help you. Call us for your Free Consultation: 0207 459 4037

The Complete Guide to Litigation Funding in England & Wales

We are here to help you. Call us for your Free Consultation: 0207 459 4037

The Essential Guide to Intellectual Property Protection in the UK

We are here to help you. Call us for your Free Consultation: 0207 459 4037

Understanding Defamation: A Comprehensive Guide

We are here to help you. Call us for your Free Consultation: 0207 459 4037

A Comprehensive Guide to Preventing and Resolving Partnership Disputes

We are here to help you. Call us for your Free Consultation: 0207 459 4037

Navigating Partnership Disputes: A Step-by-Step Guide

We are here to help you. Call us for your Free Consultation: 0207 459 4037

Understanding Your Rights: A Guide to Financial Services Disputes in the UK

We are here to help you. Call us for your Free Consultation: 0207 459 4037

The Essential Guide to Resolving Financial Services Disputes in the UK

We are here to help you. Call us for your Free Consultation: 0207 459 4037

Understanding Professional Negligence: An Introductory Guide

We are here to help you. Call us for your Free Consultation: 0207 459 4037

Guide to starting a Professional Negligence Claim

We are here to help you. Call us for your free consultation: 0207 459 4037

Appealing HMRC Decisions: Your Rights and Procedures

We are here to help you. Call us for your Free Consultation: 0207 459 4037

A Guide to Alternative Dispute Resolution (ADR) in HMRC Disputes

We are here to help you. Call us for your Free Consultation: 0207 459 4037

Best Practices to Minimise Bad Debts

We are here to help you. Call us for your Free Consultation: 0207 459 4037

How to start a Debt Claim

We are here to help you. Call us for your Free Consultation: 0207 459 4037

A Guide to Creditors' Rights in Insolvency Proceedings

We are here to help you. Call us for your Free Consultation: 0207 459 4037

Crypto Recovery Group: Overview of Cryptocurrency Recovery& Fraud

We are here to help you. Call us for your Free Consultation: 0207 459 4037

Cryptocurrency Tax Disputes: Navigating the Grey Areas

We are here to help you. Call us for your Free Consultation: 0207 459 4037

Avoiding Insolvency: Early Warning Signs and Remedial Actions

We are here to help you. Call us for your Free Consultation: 0207 459 4037

Navigating Corporate Insolvency: A Step-by-Step Guide

We are here to help you. Call us for your Free Consultation: 0207 459 4037

Preventing Shareholder Disputes: A Proactive Approach

We are here to help you. Call us for your Free Consultation: 0207 459 4037

The Legal Implications of Deadlock in 50/50 Owned Companies

We are here to help you. Call us for your Free Consultation: 0207 459 4037