Lidl Great Britain Limited (“Lidl”), the Part 8 Claimant and Part 7 Defendant. contracted with Closed Circuit Cooling Limited t/a 3CL (“3CL”), an industrial refrigeration and air-conditioning contractor under a Framework Agreement (“Agreement”). The Agreement enabled the parties to enter into individual work orders, each of which was to constitute a separate contract. It was the first order under the Agreement that is the subject of this case. The Agreement and the order contained provisions for interim applications, stating that 3CL could make applications following the achievement of defined milestones. Under an Application for Payment (“AFP19”) 3CL sought payment of £781,986.22. 
The first major dispute between the parties concerned the effect of AFP19. Lidl submitted that it was an invalid payment application because of its failure to comply with one or more of the requirements of the contract: a) adequately identifying the milestones for which the payment is sought; b) including photographic evidence that the milestones for which payment is sought have been achieved; and c) including evidence of renewals of the relevant insurances.  

Following the AFP19 Lidl issued its own payment notice (“Pay-7”) and valued the works at nil, this was the second major dispute. Therefore, in April 2023, 3CL referred the dispute to adjudication, on the basis that Pay-7 was not a payment notice but an invalid pay less notice served without a prior payment notice.

The third major dispute concerned the compliance of the payment terms of the contract with the Housing Grants, Construction and Regeneration Act 1996 (as amended) (the “Act”). Lidl submitted that the final date for payment was conditional on receiving a valid VAT invoice from 3CL Whereas, 3CL submitted that this was contrary to section 110(1) of the Act.

The adjudicator decided in 3CL’s favour and awarded 3CL the amount claimed in AFP19 with interest.

Lidl did not pay and instead issued a Part 8 claim seeking declaratory relief. The only defence raised was an alleged breach of natural injustice. In response, 3CL issued a Part 7 claim and summary judgment seeking enforcement of the adjudicator’s decision. During the TCC hearing, HHJ Davies heard both the Part 7 and Part 8 claims together and considered the three issues.

In relation to the first issue, the court found that the requirements of the contract were not a condition precedent to 3CL receiving payment of AFP19, as there were no words in the clause which made it clear that unless all the requirements were complied with, the application for payment would not be effective. On this basis it was decided that AFP19 was indeed valid.

In regard to the second issue the court held that Pay-7 was not a valid payment application. There was no authority to assist HHJ Davies, so he cited Coulson on Construction Adjudication, which noted that provisions in the Act that allowed for a combined payment and pay less notice had been deleted “in their entirety”. “Thus the payer must serve both the payer’s notice and a payless notice in accordance with the new s111 in the periods identified.”

Lastly, the contract provided that the final date for payment was either 21 days following the due date or receipt of the Contractor’s valid VAT invoice, whichever is the later. HHJ Davies relied on Rochford Construction Limited v Kilhan Construction Limited [2020] EWHC 941 (TCC) and ruled in favour of 3CL. He also went on to say “if the way in which Parliament has decided to address this problem is to introduce a blanket prohibition on party autonomy as regards the ascertainment of the final date for payment save as to the length of the period, it is not for the courts to allow parties to agree terms which go beyond that narrow limit simply because they do not appear to have the same potential for abuse”.

There are two key points to take away from this judgment: a) condition precedents should be drafted clearly to take effect; and b) to comply with the Act, a contract is required to have a clear due date and the final date for payment must be linked to that due date.