Lidl Great Britain Limited v Closed Circuit Cooling Limited T/A 3CL
A recent judgment of the High Court in England and Wales has provided further clarity on whether a construction contract that provides for a final date for payment linked to the provision of an invoice is compliant with the requirements of the Construction Contracts (Northern Ireland) Order (the 1997 Order).
The case arose out of a dispute between a well-known retailer, Lidl, and an industrial refrigeration and air-conditioning contractor, 3CL.
By its 19th interim payment application, 3CL sought payment of £781,986.22. Various disputes arose between the parties as to the validity of 3CL’s payment application and the invalidity of a payment notice served by Lidl. 3CL then commenced an adjudication in April 2023. The adjudicator decided that Lidl ought to pay the sum applied for by 3CL together with interest.
Lidl did not pay and 3CL issued court proceedings to enforce the adjudicator’s decision. Lidl issued its own proceedings, seeking a determination from the court that the adjudicator had got it wrong on certain substantive issues, with the result that the adjudicator’s decision should not be enforced.
The Invoice Issue
The contract between the parties made the final date for payment conditional upon 3CL delivering a compliant VAT invoice.
One of the issues to be determined by the court, which was identified as being of more general importance, was whether the decision in Rochford Construction Limited -v- Kilhan Construction Limited should be followed. That was a 2020 decision of the High Court in England which dealt with whether a final date for payment can be "pegged" to an event or mechanism such as the issuing of an invoice.
In Rochford, the Judge decided that a final date for payment ought to "be pegged to the due date and be a set period of time, and not an event or a mechanism." It was said that this "makes a degree of sense given that it will be important for the payer to be exactly certain how much time he or she has in which to serve a pay less notice, the final date for payment being the date which is critical to that step."
On that logic, a final date for payment that was pegged to provision of an invoice would not comply with the 1997 Order. However, the Judge in Rochford admitted that her decision was made "with some diffidence".
The 1997 Order is the legislation that governs adjudication and payment in "construction contracts" in Northern Ireland.
There is no escaping the statutory rules on payment. If a construction contract does not comply, then the relevant provisions of the Scheme for Construction Contracts in Northern Ireland will take effect as an implied term.
Those statutory rules include a requirement that a construction contract must:
- Provide an adequate mechanism for determining what payments become due under the contract and when; and
- Provide for a final date for payment in relation to any sum which becomes due.
The parties to a construction contract are free to agree how long the period is to be between the date on which a sum becomes due and the final date for payment.
The regime in England and Wales is similar, albeit different legislation applies.
Smash and Grab
A failure by the paying party (in this case, Lidl) to serve either a valid payment notice or a pay less notice has consequences, as it enables a contractor to claim payment of the amount stated in an interim application (whether or not, it represents the "true" valuation of the work).
Such claims can be speedily decided through adjudication and have been termed as “smash and grab” adjudications.
The Judge was satisfied that the decision in Rochford was correct. In the Judge’s view:-
“the only discretion … is for the parties to agree the period between the due date for payment and the final date for payment. If it was open to a paying party to include a provision which required the fulfilment of some further condition between the due date for payment and the final date for payment, that would have the effect of driving a coach and horses through the wording and clear intention of this part of the Act”.
Carson McDowell View
Although this judgment was given by an English court, it is likely to be considered by a court in Northern Ireland tasked with determining the same issue.
It is perhaps not a surprising judgment. After the decision in Rochford, the NEC issued amendments to its NEC4 suite of contracts, which included changes intended to deal with the issue of the final date for payment being linked to an invoice. To the extent that was indicative of the industry’s response, the inclination was to move away from the practice of linking final dates for payment to the provision of invoices.
Prudent paying parties ought to review their payment provisions. It will still be feasible to have an invoice as part of the payment process, but any provisions that link the final date for payment to the provision of an invoice may be subject to challenge.
If you have any queries the Construction team at Carson McDowell would be happy to help.
*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.