1st Formations Limited v Lapp Industries Ltd

This judgment was handed down by the court remotely by circulation to the parties’ representatives by email and released to The National Archives. The date and time for hand-down is deemed to be 19 June 2025 at 10.30. Adrian Williamson KC :

1. In these Part 8 proceedings, the Claimant (“Formations”) seeks declarations as to the validity of an application for payment (“the Application”) issued by the Defendant (“LAPP”) on 14 th April 2023.

2. The background to these proceedings is set out in my earlier Judgments dated 25 th March 2025 (extempore) and 16 th April 2025 ( [2025] EWHC 943 (TCC) ). In short, LAPP persuaded an Adjudicator that the Application was a valid application for payment. She issued a Decision in LAPP’s favour in the amount of £100,000 plus VAT, interest and costs. I granted summary judgment for these sums in my judgment of 16th April 2025. Formations now seek to reverse the Decision and the Judgment by showing that the Application was not, in fact, a valid application for payment.

3. In this Judgment, I will deal with the matter under the following headings: a) The facts; b) The Law; c) Discussion; d) Conclusions. A. The facts

4. These issues arise in the following context. In 2022, LAPP was engaged by Formations under a construction contract (“the Contract”) to carry out works relating to the refurbishment of the reception, business centre, and second and third floors at 71 – 75 Shelton Street, London WC2H 9JQ (“the premises”).

5. The Contract thereafter grew in scope based on separate quotations and acceptances together with further instructions for variations and work performed thereunder. However, by my Judgment dated 16 th April 2025, I decided that there was a single contract.

6. The Contract did not contain any payment terms as required by the payment provisions of the Housing Grants, Construction and Regeneration Act 1996 as amended (“ the Act ”) and so the payment provisions of Part II the Scheme for Construction Contracts 1998 as amended (“the Scheme”) apply as implied terms of the Contract (by section 114(4) of the Act ). See further below.

7. On 14 April 2023, LAPP sent to Formations what they asserted to be an application for an interim payment under the contract (“the Application”).

8. The covering email from Mr Harris of LAPP stated as follows: “Please find attached an application for an interim payment for work carried out at Shelton Street. The amount is based on my provisional valuation of the works carried out, and may be subject to any agreed adjustment following assessment by Jonathan Grubb of Northcote Building Consultancy. I have therefore requested a payment on account of £100,000.00 to cover my costs pending such agreement. Please note that I have carried out the works in good faith following numerous instructions from yourself, but the payments received so far fall far short of the costs incurred, and it is essential that I receive prompt payment in order to cover those costs, which include the payment of staff, materials, finance costs and VAT. I would be grateful for a prompt settlement of the amount applied for, pending agreement of the final account with Jonathan Grubb.” 202 5:19 To: Graeme Donnelly : Grubb Subject: Payment Invoice 023021 - Studios - Payment (71-75 Shelton Street).pdf; Payment A9.9. Application Lapp - 71 - 75 Shelton Street.pdf; Studios - Costings.pdf Graeme, Please find an application for I have requested a payment on £100,000.00 to my costs pending such agreement. Please note I have out the works in good faith following from yourself, the payments so far fall far short the costs incurred, and it is essential I prompt payment in to those costs, include the payment staff, materials, finance costs and VAT. I be or a Paul Harris

9. The email attached three documents.

10. The first was an invoice, in the following terms: “Interim Payment for works Completed at 71-75 Shelton Street £100,000.00 Sub Total £100,000.00 VAT £20,000.00 TO PAY £120,000.00 …Payment due within 14 days from the date of this Invoice. Please make payment to the following: LAPP Industries Ltd…” (Bank account details were then given)

11. The second was a breakdown of what was essentially a final account for the works at the premises. Save for electrical works, figures were given for each item of work. This account totalled £588,590.60.

12. The third document was an application as follows, with emphasis as original: “ September 2022- March 2023 Application for interim payment… Value* of work carried out as attached valuation: £588,590.60 * Excluding Electrical & Data Works yet to be finalised Less: payments previously received: £303,712.00… Total payment now due: £341,854.32 Payment requested on account: £100,000.00 ex VAT VAT £ 20,000.00 Total Interim Payment Requested £120,000.00 Payment is due within 14 days from the date of this application.”

13. Formations did not issue any valid Payment Notice or Pay Less Notice. LAPP’s case is that the Application therefore became a Default Payment Notice. LAPP say that it was entitled to the notified sum of £120,000 (inclusive of VAT). This was not paid by Formations.

14. On 22 November 2024, LAPP commenced the adjudication by serving its Notice of Adjudication. On 25 November 2024, Ms Grace Cheng was appointed as the Adjudicator by the Chairman of TECBAR.

15. On 24 December 2024, the Adjudicator issued the Decision in LAPP’s favour. She concluded that there was a notified sum of £120,000. LAPP was awarded payment of the notified sum and interest. Formations were to pay those sums within 14 days and were liable for the whole of the Adjudicator’s fees.

16. I should say for completeness that Counsel referred me to a small number of additional documents passing between the parties from February to April 2023, but I do not think it is necessary to lengthen this Judgment by setting those out. B. The Law

17. The Act , as amended by the Local Democracy, Economic Development and Construction Act 2009 , provides by section 109 that: “(1)A party to a construction contract is entitled to payment by instalments, stage payments or other periodic payments for any work under the contract unless— (a)it is specified in the contract that the duration of the work is to be less than 45 days, or (b)it is agreed between the parties that the duration of the work is estimated to be less than 45 days. (2) The parties are free to agree the amounts of the payments and the intervals at which, or circumstances in which, they become due. (3) In the absence of such agreement, the relevant provisions of the Scheme for Construction Contracts apply.”

18. Dates for payment are set out in section 110 and, again, the Scheme applies if the contract does not comply therewith.

19. Sections 110A, 110B and 111 provide for notices and the requirement upon the payer to pay the sum notified. In summary, so far as relevant for present purposes, the payer is obliged to pay the sum notified unless it has served a valid Payment Notice or Pay Less Notice.

20. In the present case, it is not in dispute that: i) The Contract did not provide for the amounts of interim payments and the intervals at which, or circumstances in which, they became due, so that the Scheme applies; ii) Formations did not serve a valid Payment Notice or Pay Less Notice, so that, if the Application complied with the Scheme the sums applied for had to be paid.

21. The relevant provisions of the Scheme are as follows: “Entitlement to and amount of stage payments

2. — (1) The amount of any payment by way of instalments or stage or periodic payments in respect of a relevant period shall be the difference between the amount determined in accordance with sub-paragraph (2) and the amount determined in accordance with sub-paragraph (3). (2) The aggregate of the following amounts— (a) an amount equal to the value of any work performed in accordance with the relevant construction contract during the period from the commencement of the contract to the end of the relevant period (excluding any amount calculated in accordance with subparagraph (b)), (b) where the contract provides for payment for materials, an amount equal to the value of any materials manufactured on site or brought onto site for the purposes of the works during the period from the commencement of the contract to the end of the relevant period, and (c) any other amount or sum which the contract specifies shall be payable during or in respect of the period from the commencement of the contract to the end of the relevant period. (3) The aggregate of any sums which have been paid or are due for payment by way of instalments, stage or periodic payments during the period from the commencement of the contract to the end of the relevant period. (4) An amount calculated in accordance with this paragraph shall not exceed the difference between— (a) the contract price, and (b) the aggregate of the instalments or stage or periodic payments which have become due. Dates for payment

3. Where the parties to a construction contract fail to provide an adequate mechanism for determining either what payments become due under the contract, or when they become due for payment, or both, the relevant provisions of paragraphs 4 to 7 shall apply.

4. Any payment of a kind mentioned in paragraph 2 above shall become due on whichever of the following dates occurs later— (a) the expiry of 7 days following the relevant period mentioned in paragraph 2(1) above, or (b) the making of a claim by the payee…

7. Any other payment under a construction contract shall become due (a) on the expiry of 7 days following the completion of the work to which the payment relates, or (b) the making of a claim by the payee, whichever is the later. Final date for payment 8.— (1) Where the parties to a construction contract fail to provide a final date for payment in relation to any sum which becomes due under a construction contract, the provisions of this paragraph shall apply. (2) The final date for the making of any payment of a kind mentioned in paragraphs 2, 5, 6 or 7, shall be 17 days from the date that payment becomes due.”

22. The amended provisions of the Act , in particular Sections 110 A, 110B and 111, whereby a payee might be entitled to be paid a notified sum, came into force in 2011. They began to be utilised by payees in the mid-2010s. This gave rise to numerous “smash and grab” adjudications, in which payees had served the requisite notices, but payers had not responded in time with a valid Payment Notice or Pay Less Notice. This regime is a rigorous one, with potentially “draconian” consequences for paying parties. As summarised by Carr, J (as she then was) in Jawaby Property Investment Ltd v The Interiors Group Ltd. and others [2016] EWHC 557 (TCC): “[39] The interim payment provisions in the Contract reflect the requirements of s. 110 A and s. 111 of the Act . Their effect is to require an employer at periodic intervals to pay “the notified sum” by a final date for payment, irrespective of whether or not that sum in fact represents a correct valuation of the work to date. If an employer fails to give relevant notice, irrespective of whether this is by mistake, administrative oversight or any other reason, then a sum for which the contractor has applied becomes immediately contractually payable, even if it is wrong in valuation terms.”

23. This new regime in turn led to a number of decided cases in the TCC, in which Judges were anxious to ensure that payees should not take unfair advantage of these provisions.

24. Although Counsel cited a number of these cases dating from 2015 onwards, I think that the law is now summarised in two decisions in this court.

25. The first is Kersfield Developments v Bray and Slaughter [2017] EWHC 15 (TCC) , where O’Farrell, J explained the position as follows: “[31] For the purposes of the payment provisions in the Act , an application for interim payment must be sufficiently clear and unambiguous in form, substance and intent so that the parties have notice of the application made… An interim application must be obviously identifiable as such and it must set out, as a minimum, the sum claimed as due and the basis on which such sum is calculated. [32] The parties are free to agree additional requirements as to the form, content and substantiation of the application, provided that they do not conflict with the statutory regime.”

26. More recently, Joanna Smith, J set out the relevant principles in Advance JV v Enisca Ltd [2022] EWHC 1152 (TCC) as follows at para 47: “ In summary, the approach to be taken by the court as gleaned from these authorities is as follows: i) In considering the true construction of a contractual notice (including notices under the payment regime in the Act – see Grove Developments per Coulson J at [21]-[22] and S&T in the Court of Appeal at [58] per Sir Rupert Jackson), the question is not how its recipient in fact understood it. Instead "the construction of the notices must be approached objectively. The issue is how a reasonable recipient would have understood the notices", i.e. a reasonable recipient "circumstanced as the actual parties were" (see Mannai at 767 G-H and 768B-C per Lord Steyn). ii) The notice must be construed taking into account the "relevant objective contextual scene", i.e. the court must consider "what meanings the language read against the contextual scene will let in" (see Mannai at 767H and 768A-B). This means that, amongst other things, the reasonable recipient will be credited with knowledge of the relevant contract (see Mannai at 768B-C). iii) The purpose of the notice will be relevant to its construction and validity (Mannai at 768E). iv) 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" (Thomas Vale per HHJ Kirkham at [43]; Grove at [26]). Instead, as Sir Peter Coulson says in paragraph 3.36 of his book on Construction Adjudication (4th ed. 2018), focusing specifically on Pay Less Notices: "The courts will take a commonsense, practical view of the contents of a payless notice and will not adopt an unnecessarily restrictive interpretation of such a notice…It is thought that, provided that the notice makes tolerably clear what 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". v) There is no principled reason for adopting a different approach to construction in respect of different kinds of payment notices (for example because some may give rise to more draconian consequences than others) as that would be contrary to the guidance in Mannai (see Grove at [27]). However: "the particularly adverse consequences for an employer that follow from, say, a contractor's unanswered application/payment notice are relevant to the test of the reasonable recipient". vi) To qualify as a valid notice, any payment notice must comply with the statutory (and, if more restrictive, the contractual) requirements in substance and form (Henia per Akenhead J at [17]). Payment notices and Pay Less Notices must clearly set out the sum which is due and/or to be deducted and the basis on which the sum is calculated. Beyond that, the question of whether a notice is or is not a valid notice is "a question of fact and degree" (Grove at [29] and S&T at [53]). vii) Over and above the question of whether a notice has achieved the required degree of specificity, will be the additional question of whether the document that is alleged to constitute a valid notice was in fact intended to be such and whether it is "free from ambiguity" (Henia at [17] and Grove at [42]). The sender's intention is a matter to be assessed objectively taking into account the context. (Jawaby at [43], [59] and [63]). viii) Although in Grove , Coulson J observed that payment notices must make plain what they are, there is no requirement for a particular type of notice, such as a Pay Less Notice, to have that title or to make specific reference to the contractual clause in order to be valid: "[t]he question is whether, viewed objectively, it had the requisite intention to fulfil that function" ( Surrey & Sussex at [65]). ix) One way of testing the validity or otherwise of a Pay Less Notice will be to see whether it "provided an adequate agenda for an adjudication as to the true value of the Works…" (Henia at [32] and Grove at [26]).”

27. As I have said, these two cases, in my view, sufficiently summarise the current state of the law. This is subject to two footnotes: i) On the facts of a particular case, the court may find that a payee’s notice is inadequate because it is provisional: see the discussion at para 56 of Jawaby ; ii) The “notified sum” regime has now been in place for a decade or more, and is well known. As Fraser, J (as he then was) observed in J & B Hopkins Ltd v Trant Engineering Ltd [2020] EWHC 1305 (TCC): “34… Parliament has decreed in very clear terms the necessity of certain notices, including payless notices and payment notices, and the failure to comply with that notice regime does lead parties in some circumstances validly to commence adjudications and obtain decisions in their favour, which are not necessarily based on the merits of the underlying dispute.

35. There are some statements in the witness statements, or some comments, which suggest on the Defendant’s part a disapproval of this course of action…All of those statements reflect disapproval which, in my judgment, is disapproval not of the dispute that was adjudicated upon but must be disapproval of the Parliamentary framework which has been imposed on construction contracts. This framework very carefully sets out what happens when notices are not complied with. Whether such disapproval is merited or not is a wholly subjective point of view. Serving the relevant and required notices is not an impossible or Herculean task. Failure to do so has certain consequences. These are widely known and this judgment provides another example.” C. Discussion

28. Looking at the Application on its face, the natural reaction of a reasonable recipient would be that this was indeed, as it was described, an application for an interim payment. LAPP were asserting that £100,000.00 was due and that this sum was to be paid within 14 days. It was not “an impossible or Herculean task” for Formations to respond with a valid Payment Notice or Pay Less Notice.

29. The mischief which has concerned the Judges of this court in the cases summarised in Kersfield and Advance JV is that payees may take unfair advantage of the post-2011 regime. That could occur where payers are simply not put on notice that an interim payment is being sought, such that they cannot be expected to be ready with their own notices. On the face of it, that mischief is not present in this case: LAPP made very clear they were seeking an interim payment, to be made promptly.

30. However, Formations say that the Application was not a valid application for interim payment in accordance with the Scheme because: “(i). It was not an application for an amount representing an interim payment in accordance with para 2(1) of Part II of the Scheme as the amount purportedly applied for was not the difference between an amount determined in accordance with paragraph 2(2) of the Scheme and an amount determined in accordance with paragraph 2(3) of the Scheme. (ii). It was ambiguous and was not by substance, form and intent an interim payment application under the Scheme: (1). The “total payment now due” was stated to be £341,854.32 (inclusive of VAT) but the payment “requested on account” in the application was £100,000 plus VAT. It was stated to be a request for an arbitrary sum as “payment on account” based on a “provisional valuation of the works carried out” pending a proper valuation of the works and/or agreement of the value of the works; (2). Payment was stated to be due “within 14 days” whereas if it was an application under the Scheme, payment would have been due either “on the expiry of 7 days following the completion of the work to which the payment relates” or “the making of a claim by the payee”. (3). The sums described in the application were stated to be provisional and “subject to any agreed adjustment following assessment by Jonathan Grubb of Northcote Building Consultancy”.” (para 7 of Part 8 Claim Form)

31. I will deal with these points in turn.

32. As to point (i), the Application did set out “the difference between the amount determined in accordance with sub-paragraph (2) and the amount determined in accordance with sub-paragraph (3)”, as required by para 2(1) of the Scheme. However, the Application, having stated that the “Total payment now due” was £ 341,854.32, then “requested on account” the sum of £120,000 inc. VAT.

33. It seems to me that it would be an absurd reading of para 2 of the Scheme that an application would be valid if it sought “the difference between the amount determined in accordance with sub-paragraph (2) and the amount determined in accordance with sub-paragraph (3)”, but would be invalid if it required £1 or £100 less than this amount.

34. In my view, LAPP had quite accurately complied with para 2 of the Scheme, but then went on to seek a lesser sum “on account”. Given the apparent state of negotiations over the final account, they were realistically and commercially confining themselves to a claim for a smaller sum than para 2 would, on its face, have entitled them to claim. That, it seems to me, does not invalidate the Application.

35. Likewise, I do not think (point (ii)(1)) that this request for an “on account” payment rendered the Application ambiguous or not in substance, form and intent an interim payment application under the Scheme. There was no ambiguity: LAPP sought to be paid £100,000.00 plus VAT.

36. The Application was in substance, form and intent an interim payment application under the Scheme since LAPP set out their valuation of the works as a whole and then, as noted above, confined the Application for payment to a lesser sum. Save for the electrical works, the valuation was reasonably detailed. It provided an adequate agenda for an adjudication as to the true value of the Works: indeed, Formations’ Quantity Surveyor was able to raise 31 queries/challenges to the sums sought by his email of 21 st April 2023.

37. As to the dates for payment (point (ii)(2)), this point seems to me to be misconceived. LAPP were saying that at least £100,000.00 was due as at 14 th April 2023 and that this should be paid by 28 th April 2023. In the language of the Scheme (of which both parties seem to have been wholly unaware in fact), they were saying that: i) Payment was due on 14 th April, by which date had occurred “the expiry of 7 days following the relevant period mentioned in paragraph 2(1) above” and “the making of a claim by the payee”; ii) The final date for payment was 28 th April 2023.

38. It may be that one or other of these dates was erroneous. But, in my judgment, that would not invalidate the Application. Rather, Formations might have been entitled to respond that the due date and/or the final date for payment had not yet arisen. That goes to points that might be raised in answer to the Application, rather than to the validity of the Application itself. Furthermore, I was not shown any authority which required the due date or final date to be accurately stated in order to render a payee’s notice compliant with the Act and the Scheme.

39. The final argument made by Formations (point (ii)(3)) is that Mr Harris said in his email that the “amount is based on my provisional valuation of the works carried out, and may be subject to any agreed adjustment following assessment by Jonathan Grubb of Northcote Building Consultancy”. That does not seem to me to invalidate the Application to be paid £100,000. That sum was based on a detailed valuation, subject to the fact that information was awaited from LAPP’s electrical contractor and subject to the inevitable expectation that there would be final account negotiations with Formations’ QS. But, unlike the situation described at para 56 (c) of Jawaby , this was not “a very far cry from a statement by TIG of the sum that it considered to be due to it for the purpose of clause 4.8.1 of the Contract and such as to carry the draconian consequences of the payment regime that follows”: LAPP were definitely saying that at least £100,000.00 was due as at 14 th April 2023.

40. Standing back, and looking at the Application in a common sense, commercial way, it seems to me obvious that LAPP were making an application for an interim payment in the sum of £100,000.00 plus VAT: i) That is exactly what Mr Harris said he was doing in his covering email; ii) He also sought in this email “prompt settlement of the [interim] amount applied for, pending agreement of the final account”; iii) LAPP provided a VAT invoice. Contractors do not do this unless they expect to be paid promptly, since the VAT, once invoiced, has to be accounted for to HMRC; iv) The invoice sought payment within 14 days; v) The Application itself was headed “Application for interim payment” and sought “an interim payment”; vi) The Application reiterated that the “Payment requested on account” was £100,000.00 plus VAT and that this payment was due within 14 days.

41. I think that any other approach to the Application would be to fall into the trap of “nice points of textual analysis or arguments which seek to condemn the notice on an artificial or contrived basis”, as warned against at para 47(iv) of Advance JV . To paraphrase what Sir Peter Coulson says in his textbook, cited at the same sub-paragraph, the courts will take a commonsense, practical view of the contents of a payee’s notice and will not adopt an unnecessarily restrictive interpretation of such a notice. Provided that the notice makes tolerably clear what is being claimed and why, the court will not strive to intervene or endeavour to find reasons that would render such a notice invalid or ineffective.

42. Finally, and considering the approach in Kersfield , the 14 th April documents: i) Were obviously identifiable as an interim application; ii) Set out the sum claimed as due and the basis on which such sum was calculated. D. Conclusions

43. For the reasons set out above, I have concluded that the Application was a valid application in accordance with the Act and the Scheme. Formations are not entitled to any of the declarations which they seek and these Part 8 proceedings should be dismissed.

44. I would invite Counsel to agree any consequential matters or, failing agreement, these matters should be dealt with in brief written submissions.