When is an interim account not an interim account?

Not only does this case have oodles of common sense bursting out of its seams, it also is about the real end, the everyday end, of our building industry. It is about builders, small builders with a handful (at most) of staff. They buy wheelbarrows and shovels. It is not about contractors. You know the difference, of course?

In ordinary builders’ territory it is ever so usual to issue an interim account in broad-brush round terms. In the case of 1st Formations Ltd vs Lapp Industries Ltd [2025], the builder (Lapp) began work to carry out a lump of demolition here and there, and some enabling works. It grew like topsy. Lapp’s employer, 1st Formations, did a sort of “while you are here” addition – and then a bit more, and a bit more… You get the idea. 

So it is not surprising that Lapp then chucked in an “on-account” interim application for £100,000 plus VAT. That’s what happens time and again with ordinary builders. The employer payer will “look and sniff” the application and invariably pay up – or, if it’s a tad too sniffy, will pay most of it on account. The snag is that this time the payer went too far. It paid nothing at all. 

1st Formations argued that Lapp’s lump-sum claim was not a pukka interim account at all… that only an account with itemised, detailed, chapter and verse valuation amounts to an interim account

I dare say Lapp was upset – after all, it was rather rude to pay nowt! So Lapp took advice, and in due course an adjudicator decided in Lapp’s favour and the cash was stumped up. 

The bright idea that the employer then had was to begin a piece of litigation to argue that the application for payment by Lapp for a mere “on-account sum” was not an application at all. 

It argued that Lapp had failed the test for what is an application. And, since the adjudicator’s decision is merely pro-tem binding, and since it was obeyed by 1st Formations, it was open to the employer to bring the dispute to court.

It was perfectly true that 1st Formations had made no response to Lapp’s interim claim for the £100,000 + VAT. There was no payment notice, nor a pay less notice. So, on the face of things, the money was due; the adjudicator was correct.  

A lot of builders, in real life, bung in a simple claim for an on-account lump sum.  Life is too hectic to provide all the niceties of spreadsheets and bumf. So, is a simple on-account memo good enough? 

But later, in court, 1st Formations argued that Lapp’s lump-sum claim was not a pukka interim account at all; so it argued for repayment. 1st Formations said that only an interim account with itemised, detailed, chapter and verse valuation amounts to an interim account. But an awful lot of builders and subcontractors, in real life, bung in a simple claim for an on-account lump sum. Life is too hectic to provide all the niceties of spreadsheets and bumf. So, is a simple on-account memo good enough?

You might expect, given that the adjudication was heard and decided by a barrister, and given that a second go at arguing was in the High Court, that the rules were scrutinised. The payment rules applying here were the Scheme (the Scheme for Construction Contracts). They are well known even by most builders. 

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The key point, however, remains whether a round-sum/lump-sum claim undetailed makes a good interim account. The judge said: “Looking at the application on its face, the natural reaction of a reasonable recipient would be this was indeed an application for payment.” He added that “it was not an impossible or herculean task for 1st Formation to respond with a valid payment notice or pay less notice”. He also said that there was no mischief here by Lapp; it just wanted a sum on account. 

By the way, years ago we always did things this way, but then folk became hell-bent on exploiting the rules. We used pieces of paper which said “say £x”, and “say” was good enough for the payer to come up with a lesser “say”. 

These days, arguing about whether a document amounts to an application for payment has become a sport. So too whether a payment notice is good or bad or whether a pay less notice is up to snuff. My guess is that the High Court had called time on these expensive efforts. The tendency is to consign them to the “no go” bin. 

Here are some judicial comments: One judge said, “The issue is how a reasonable recipient will be credited with knowledge of the relevant conflict.” In other words, real-life knowledge. 

Another said, “The court will be unimpressed with nice points of textual analysis or arguments which seek to condemn the notice on an artificial or contrived basis.” Another: “The courts will take a commonsense practical view of the contents of a notice”. Yet another: “The court will not strive to intervene or endeavour to find reasons that would render such a notice invalid or ineffective.”

In Lapp Industries Ltd vs 1st Formations Ltd, Lapp sent a note with its “on account” payment claim, explaining that it was a sum less than it was entitled to, but was a shortcut to a payment needed. It didn’t help that the payer said nothing in response, not even “push off!”. So it had to pay. When it came all the way to the High Court, the judge could see nothing but simple good faith in claiming the £100,000 on account. So that sum was a fair claim and 1st Formations had to pay.

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