Deerns v VDC – Payment Provisions Under Scrutiny, One Clause and a £910,000 Drafting Mistake
The Technology and Construction Court has once again reinforced the importance of ensuring that construction contracts comply with the mandatory payment provisions of the Housing Grants, Construction and Regeneration Act 1996 (“HGCRA”). In Deerns UK Ltd v VDC LHR11 Ltd [2026] EWHC 1509 (TCC), the Court considered whether a contractual payment mechanism that allowed the final date for payment to move depending on when a payment application was submitted complied with section 110 of the HGCRA.
The decision provides a timely reminder that even carefully drafted payment provisions can be rendered ineffective where they fail to provide a fixed period between the due date for payment and the final date for payment.
Background
Deerns UK Limited was engaged by VDC LHR11 Limited under a consultancy agreement to provide engineering consultancy services on a London development. Following two unpaid payment applications, the Consultant commenced proceedings seeking payment of approximately £910,000 plus VAT.
The dispute did not concern the value of the applications themselves. Instead, it centred on whether the Defendant’s Pay Less Notices had been served in time. That question depended entirely upon whether the payment provisions within the contract complied with section 110(1)(b) of the HGCRA.
The Contractual Payment Mechanism
The contract provided that:
- the due date for payment was fixed by reference to the agreed payment schedule;
- the final date for payment was 30 days after the due date; but
- if the Consultant submitted its payment application late, the final date for payment would be postponed by the same number of days.
Although the parties had intended to allow flexibility where payment applications were submitted late, this drafting meant that the period between the due date and the final date for payment could vary from one payment cycle to another.
The Court’s Decision
The Court held that the payment provisions did not comply with section 110 of the HGCRA. However, before reaching that conclusion, it first had to determine the proper interpretation of clause 7.2.
The Defendant argued that clause 7.2 should be read together with the Schedule of Valuation Dates so that, where a payment application was submitted late, both the due date and the final date for payment moved together. On that interpretation, the period between the due date and the final date would always remain a fixed 30 days, satisfying section 110 of the HGCRA.
The Court rejected that interpretation. Mr Justice Eyre held that the express wording of clause 7.2 fixed the due date for payment as the specified date in Schedule 1 and only provided for the final date for payment to be postponed where a payment application was submitted late. Nothing in the contract stated that the due date itself moved. As a result, a late payment application could extend the final date for payment whilst leaving the due date unchanged, meaning the interval between the due date and the final date was capable of varying depending upon when the application was made.
In reaching that conclusion, the Court reaffirmed the principles established in Rochford Construction Ltd v Kilhan Construction Ltd [2020] EWHC 941 (TCC) and Lidl Great Britain Ltd v Closed Circuit Cooling Ltd [2023] EWHC 2243 (TCC). Those authorities establish that whilst parties are free to agree how the due date for payment is determined, the final date for payment must always be a fixed period after the due date. It cannot depend upon any separate event or mechanism.
The Judge also rejected the Defendant’s argument that the defect only arises where an event occurring after the due date alters the final date. Whether the relevant event occurs before or after the due date is immaterial. If the final date depends upon anything other than the due date itself, the contractual provisions fail to satisfy section 110.
The Scheme for Construction Contracts
Having concluded that clause 7.2 did not provide a compliant final date for payment, section 110(3) of the HGCRA automatically incorporated the relevant provisions of the Scheme for Construction Contracts.
The Defendant nevertheless argued that the Court should preserve the parties’ intended commercial bargain by making only the minimum necessary amendment to the contract. It submitted that the Court should effectively treat the payment provisions as creating an unextendable 30-day period between the due date and the final date for payment, thereby preserving the parties’ intended payment timetable.
Whilst the Court acknowledged the commercial attraction of that argument, it held that there was no legal basis for doing so. Once it had concluded that the contract failed to provide a compliant final date for payment, Parliament had already prescribed the consequence. Paragraph 8 of the Scheme applies automatically and imposes a final date for payment of 17 days after the due date. The Court had no power to rewrite the parties’ agreement or substitute a different payment period simply because it better reflected the parties’ commercial intentions.
Accordingly, the Defendant’s Pay Less Notices, which would have been valid under the contractual timetable, were out of time once the statutory Scheme applied and were therefore ineffective.
Estoppel Argument Rejected
The Defendant also sought to argue that the parties had operated the contract on the basis of a shared understanding that the payment timetable would move whenever a payment application was submitted late, creating an estoppel by convention. The Court rejected this argument.
Whilst estoppel by convention remains available in principle, the Defendant failed to demonstrate a sufficiently clear and communicated shared assumption between the parties. Informal payment practices and historic dealings were insufficient to establish that both parties had agreed to operate the contract differently from its express wording.
The judgment also confirms that merely raising an estoppel argument will not necessarily make a dispute unsuitable for determination under Part 8 proceedings.
Practical Implications
This decision is another reminder that payment provisions require careful drafting. Contractual mechanisms which seek to adjust the final date for payment by reference to events such as late payment applications, invoices or other procedural steps may unintentionally fall foul of section 110 of the HGCRA. Where that occurs, the relevant provisions of the Scheme for Construction Contracts will be imported automatically, often producing payment dates very different from those originally intended by the parties.
For employers, contractors and consultants alike, the consequences can be significant. A Pay Less Notice served in accordance with the contract may nevertheless be ineffective if the contractual payment provisions themselves are non-compliant, potentially exposing the paying party to liability for the full notified sum.
How CCC Can Help
Payment provisions remain one of the most heavily litigated areas of construction law, and even seemingly minor drafting issues can have substantial financial consequences. At Contract & Construction Consultants (“CCC”), we regularly advise employers, contractors, subcontractors and consultants on the drafting, interpretation and operation of contractual payment mechanisms, including compliance with the HGCRA and the Scheme for Construction Contracts. We also provide strategic advice on payment disputes, adjudication proceedings, true value disputes and the validity of Payment Notices and Pay Less Notices. Whether reviewing standard form amendments, negotiating bespoke contracts or managing a live payment dispute, our experienced team can help ensure that your contractual arrangements achieve the commercial certainty intended whilst remaining compliant with the statutory payment regime.
