This is the second judgment on a disputed notified sum between 1st Formations Ltd v Lapp Industries Ltd [2025] EWHC 1526 (TCC). This leg concerns the validity of the application within the context of the Housing Grants, Construction and Regeneration Act 1996 (as amended) and the Scheme for Construction Contracts 1998 (as amended). The court concluded that the application issued by LAPP was valid and therefore the Part 8 proceedings were dismissed.
Factual Background
LAPP was engaged by Formations under a construction contract in 2022 for refurbishment works. The contract did not contain specific payment terms, thus implying the payment provisions of Part II of the Scheme for Construction Contracts 1998 (as amended) by operation of section 114(4) of the Act.
Lapp emailed Formations on 14 April 2023 attaching three documents which detailed the payment application and stated it was “an application for an interim payment for work carried out at Shelton Street” based on a “provisional valuation,” requesting “a payment on account of £100,000.00.” The first document was an invoice for payment of £100,000.00 ex VAT. The second document was essentially a final account totalling £588,590.60. The third document was the payment application stating that the total payment due was £341,854.32 but requesting a payment on account of £100,000.00 ex VAT.
On 24 December 2024 an adjudicator found the application for payment to be valid and the notified sum, awarding LAPP £100,000 plus VAT, interest, and costs. The High Court rejected Formations arguments on jurisdiction and natural justice and granted summary judgment on 16 April 2025, so Formations’ brought these proceedings in an attempt to reverse the first judgment by proving the application’s invalidity.
Legal Principles
This judgment describes the payment regime under the 2011 Act as rigorous, potentially “draconian” but not “herculean” and cites Jawaby Property Investment Ltd v The Interiors Group Ltd. and others [2016] EWHC 557 (TCC) on the operation of the regime:
“[39] The interim payment provisions in the Contract reflect the requirements of s. 110A and s. 111 of the Act. Their effect is to require an employer at periodic intervals to pay ‘the notified sum’ by a final date for payment, irrespective of whether or not that sum in fact represents a correct valuation of the work to date. If an employer fails to give relevant notice, irrespective of whether this is by mistake, administrative oversight or any other reason, then a sum for which the contractor has applied becomes immediately contractually payable, even if it is wrong in valuation terms.” [emphasis added]
In respect of the judicial approach to payment notices, the court cited Advance JV v Enisca Ltd [2022] EWHC 1152 (TCC) and specifically that the construction of notices:
i) is to be approached objectively, considering how a reasonable recipient would have understood the notices, such that a reasonable recipient is credited with knowledge of the contract;
ii) the courts are unimpressed by nice points of textual analysis or arguments which seek to condemn the notice on an artificial or contrived basis;
iii) notices must comply with statutory (and contractual) requirements in substance and form, clearly stating the sum due and the basis of calculation;
iv) the document must objectively be intended to be a valid notice and be free from ambiguity; and
v) provide an adequate agenda for an adjudication as to the true value of the Works.
Court’s Discussion
The court first addressed whether the interim payment was in accordance with the Scheme paragraph (2). The court found LAPP had quite accurately complied with paragraph (2), but then went on to seek a lesser sum ‘on account’ and said it would be an absurd reading of paragraph (2) that seeking less than the calculated difference would invalidate the application. It said that LAPP was realistically and commercially confining themselves to a claim for a smaller sum and that does not invalidate the application.
The court then considered whether the application was in substance, form, and intent an interim payment application and whether it was ambiguous. The court found that there was no ambiguity; LAPP patently sought to be paid £100,000.00 plus VAT. At paragraph 36, the judge stated: “The Application was in substance, form and intent an interim payment application under the Scheme since LAPP set out their valuation of the works as a whole and then, as noted above, confined the Application for payment to a lesser sum”.
The judge went on to dismiss Formations argument on the payment due date being inconsistent with the Scheme. It said this was misconceived as even if the dates were erroneous, such errors relate to potential responses rather than the application’s validity itself.
Finally, the court found that the provisional nature and the words “subject to adjustment” did not invalidate the application as the sum was based on a detailed valuation, acknowledging pending information and expected negotiations. The judge said this could be distinguished from Jawaby, as LAPP were definitely saying that at least £100,000.00 was due as at 14 April 2023.
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