1st Formations Limited v Lapp Industries Ltd

An interim payment application under the statutory construction payment regime is valid where it is objectively clear, in substance, form and intent, that payment is sought, and the application identifies the sum claimed and the basis of calculation.

A payee may claim a lesser sum than the amount apparently calculated under the applicable payment provisions. An inaccurately stated due date or final date does not necessarily invalidate the application. Nor does describing the valuation as provisional, where the application nevertheless makes clear the sum asserted to be due. Courts should adopt a commonsense and commercial approach and avoid artificial textual objections.

These Part 8 proceedings concerned an application for an interim payment made by Lapp Industries Ltd to 1st Formations Limited under a construction contract.

The contract contained no compliant payment terms. The payment provisions of the Housing Grants, Construction and Regeneration Act 1996 and Part II of the Scheme for Construction Contracts 1998 therefore applied. Formations served no valid Payment Notice or Pay Less Notice. An adjudicator decided that Lapp’s application generated a notified sum, and summary judgment was granted for Lapp.

Formations sought declarations that the application was invalid because it claimed a lesser sum on account, stated incorrect payment dates, and relied on a provisional valuation. The central issue was whether the documents objectively constituted a valid interim payment application under the Act and the Scheme.

1. Outcome. The application was valid under the Housing Grants, Construction and Regeneration Act 1996 and the Scheme for Construction Contracts 1998. The Part 8 claim was dismissed and the declarations sought by Formations were refused.
2. The application set out the value of work and deductions, thereby identifying the calculation required by paragraph 2(1) of the Scheme. It did not become invalid because Lapp requested only £100,000 plus VAT, rather than the larger amount identified as the total payment due. A claimant may commercially confine its claim to a lesser sum.
3. Objectively, the covering email, invoice and application clearly identified an interim payment claim. They stated the amount sought, the timing of payment and the valuation on which the claim was based. The documents supplied an adequate agenda for an adjudication on valuation.
4. The reference to payment within 14 days did not invalidate the application. Any error concerning the due date or final date for payment was a matter capable of being raised in response to the application, rather than a defect destroying its validity.
5. The provisional nature of the valuation did not invalidate the application. Lapp was nevertheless asserting that at least £100,000 was due. The case was materially different from an application that was merely provisional and fell far short of identifying the sum considered due.
6. The court applied the principles summarised in Kersfield Developments v Bray and Slaughter and Advance JV v Enisca Ltd. Notices should be construed objectively in their relevant commercial context. The court should avoid nice points of textual analysis and adopt a commonsense, practical approach.

Not stated in the judgment.