Payment rigmaroles – it just shouldn’t be that complicated

The drylining enterprise Gypcraft Drylining Contractors Ltd (Gypcraft) and the London contractor Vision Construct Ltd (Vision) found themselves at odds about whether or not the confounded Construction Act payment rigmarole had been complied with. Gypcraft’s interim account called for a £216,947 cheque, but Vision said nil. The adjudicator, Mr Richard Silver, ordered the cheque. So too now has the judge in the High Court. The baseline problem is that we are all pretending the payment rules are so chock full of traps and technicalities that an adjudicator or judge might be persuaded to decide the case on a technicality instead of the real issue. In this Gypcraft vs Vision spat, neither adjudicator nor judge ran with the technical trial balloons. Let’s have a closer look.

The whole reason for the Construction Act was the awful shenanigans that plagued our industry in getting paid. In short, cash starvation was a great game for bullies. So the Latham reforms and eventually the Construction Act provided two (at least) key simple themes: (1) being informed of what cash to expect and when to expect it, and (2) if the payee didn’t like the sound of what to expect then they could call for an adjudicator. 

The machinery in the Construction Act has, I confess, become somewhat brutalised by the “ifs and buts” thought up by committees, then added to by in-house lawyers just for fun. Instead of making life simple, the payment system is made complicated and very easy for industry people to trip up on. Time and again, folk fail to send a bit of paper at the right time and end up having to pay over the odds, while others fail to send another bit of paper and deprive themselves of money due. It need not be like this. 

Time and again, folk fail to send a bit of paper at the right time and end up having to pay over the odds, while others fail to send another bit of paper and deprive themselves of money due. It need not be like this 

Gypcraft and Vision had a sensible piece of paper, setting out agreed dates and valuation dates for the drylining subcontractor to send in its account. It had to be updated on four occasions because the subcontractor’s work was delayed, but no matter. Another piece of paper then published, correctly, the “due date for payment” (that’s not when money flows, but no matter). Yet another piece of paper identified the latest date for the payer to publish what it says is the amount due, as distinct from what the payee said. Another piece of paper gave the latest date for the payer to pay less than it first said was due. Hurrah, a magic piece of paper eventually stated the final date for payment being due (the cheque, in other words). 

None of this, in, say, JCT, is beyond the wit of everyday building folk; the problem is that it is so easy to miss a date, not send the right document and be out of time. Then wallop, the payee piles in to say “pay up!” – or sometimes the payer says “you get no money this time”.

Vision, for example, failed to send to Gypcraft the payment notice on time. It was four days late. So Vision argued the late notice converted (via magic dust) to a different piece of paper being a “pay less notice”. In other words, having missed the time deadline with a “payment due” notice by four days, Vision ran an argument that the piece of paper wasn’t a payment due notice any longer and became a pay less notice with a later time deadline. It said no money was due. “Won’t do,” said the adjudicator and so did the judge. Vision then argued Gypcraft’s “application for payment” was not up to snuff and therefore invalid. “Won’t do,” was the tribunal’s response. Vision argued some more, that its approach to issuing payment notices had become the norm and therefore was embedded; lawyers call this “estoppel by convention”. No matter; that argument didn’t work. So Vision failed to defeat the adjudicator’s decision. The money belonged to Gypcraft.

>>Also read: Let’s fix construction’s payment issues

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Take a breath. The high-level courts are willing to take a pragmatic approach to technical arguments, saying “the courts expect the parties to adopt business common sense as to the arrangements for invoicing and payments”. That was Lord Justice Coulson. 

In another case, Advance JV vs Enisca Ltd [2022], Justice Joanna Smith gave a detailed approach to considering the rules of contractual notices under the payment regime of the Construction Act. She emphasised that “the court will be unimpressed by nice points of textual analysis or arguments, which seek to condemn the notice on an artificial or contrived basis”. As to such as a “pay less notice”, the recipient is to be credited with knowledge of the contract and, if it makes tolerably clear what money is being held and why, the court will not strive to intervene or endeavour to find reasons that would render such a notice invalid or ineffective. Such payment notices must be free from ambiguity. There is no need to point to contractual clauses. View the notice objectively and ask if it fulfils the intention of providing an agenda for an adjudication. If so, all’s well.

There is, however, an overarching problem, and it is this: forever and a day, the idea of paying the supplier on time does not figure in the DNA of many folk – especially in the DNA of our construction industry. This isn’t a feature of ill will, nor bad feeling between payer and supplier; it is just the way they have been raised. That’s not an excuse. They just have to learn the hard way. 

Tony Bingham is a barrister and arbitrator at 3 Paper Buildings, Temple