Partner London
"The court held that the payment regime failed to validly fix the final date for payment, with the consequence that the relevant parts of the Scheme were incorporated."
In Deerns UK Limited v VDC LHR11 Limited [2026] EWHC 1509 (TCC), the English Technology and Construction Court considered whether a contractual payment mechanism complied with section 110 of the Housing Grants, Construction and Regeneration Act 1996 (“HGCRA”).
The court held that the payment regime failed to validly fix the final date for payment, with the consequence that the relevant parts of the Scheme for Construction Contracts (the “Scheme”) were incorporated. It did so because the final date for payment could be postponed depending on whether the relevant payment application was submitted late, which did not comply with the statutory requirements for valid payment mechanisms under the HGCRA.
The decision reinforces and clarifies the previous TCC decisions in Rochford Construction Ltd v Kilhan Construction Ltd [2020] EWHC 941 and Lidl Great Britain Ltd v Closed Circuit Cooling Ltd (t/a 3CL) [2023] EWHC 2243 that, whilst parties are free to agree how the due date for payment is determined, there must be an identified and fixed period between the payment due date and the final date for payment.
For employers, contractors and consultants, the judgment once again highlights the importance of carefully reviewing contractual payment regimes to ensure compliance with the HGCRA and to avoid the unintended application of the Scheme.
Factual background
Deerns UK Limited (“Deerns”) was appointed by VDC LHR11 Limited (“VDC”) under a consultancy agreement to provide engineering consultancy services in connection with a development at Chandos Park Estate in London (the “Contract”). The dispute arose after Deerns submitted two payment applications and sought payment of £910,501.71 plus VAT, arguing that VDC’s pay less notices had been served out of time.
Section 110(1)(b) HGCRA requires every construction contract to specify a final date by which any payment that has become due must be paid. The Contract provided for a final date for payment 30 days after the due date. However, it also provided that if a payment application was submitted late, the final date for payment would be postponed by the same number of days. Crucially, whilst the final date for payment could move, the due date for payment remained unchanged. As such, the period between the due date and the final date for payment was not fixed.
Deerns contended that the agreed mechanism was not compliant with section 110(1)(b) HGCRA because the period between the due date and final date for payment was capable of varying. Meanwhile, VDC (the defendant) argued that the Contract provided a compliant payment regime in which a late payment application adjusted the entire payment timetable, including the due date, thereby preserving a fixed 30-day interval between the due date and final date for payment.
Key contacts
"The court accepted Deerns' position, finding that the payment regime did not comply with the requirements of section 110(1)(b) HGCRA."
The court’s decision
The court accepted Deerns’ position, finding that the payment regime did not comply with the requirements of section 110(1)(b) HGCRA. Mr Justice Eyre held that, properly construed, the contract provided for fixed interim valuation dates and due dates for payment but allowed the final date for payment to be postponed where payment applications were submitted late. As a result, the period between the due date and the final date could exceed 30 days and could vary from one payment cycle to another.
The court followed the reasoning in Rochford and Lidl that a compliant payment regime must provide for an identified and fixed period between the due date and the final date for payment: the final date for payment cannot depend on a separate event which alters that interval.
The court also rejected VDC’s submission that only events occurring after the due date can breach the requirements of section 110 HGCRA. The court held that the HGCRA requires certainty and, if the final date for payment can change independently of the due date, the payment mechanism is non-compliant, regardless of whether the event which affects the final date for payment occurs before or after the due date.
As a result, the contract failed to comply with section 110(3) HGCRA, meaning that the relevant provisions of the Scheme were incorporated instead. Under paragraph 8 of the Scheme, the final date for payment is 17 days from the due date. The practical consequence was that VDC’s pay less notices were served out of time and were ineffective, entitling Deerns to judgment for £910,501.71 plus VAT.
Estoppel and Part 8 Proceedings
VDC also argued that the parties had operated the Contract on the basis that a late payment application recalculated the entire payment timetable, such that the due date and final date for payment always moved together. VDC sought to rely on this alleged estoppel by convention and argued that the issue required determination at a full trial rather than under Part 8 proceedings.
The court rejected those arguments, finding that the alleged common understanding was unsupported by the contemporaneous documents and insufficiently particularised. The court also emphasised that estoppel cannot be used to prevent a party from relying on the statutory requirements of the HGCRA.
The court also confirmed that the mere assertion of an estoppel does not automatically render a dispute unsuitable for determination under Part 8 of the English Civil Procedure Rules.
Industry implications
"This judgment is another reminder that the courts will closely scrutinise payment provisions for compliance with the HGCRA."
This judgment is another reminder that the courts will closely scrutinise payment provisions for compliance with the HGCRA. Even where the parties have sought to create a commercially sensible payment mechanism, the English courts will not uphold provisions which allow the period between the due date and final date for payment to vary.
The judgment also reinforces the HGCRA’s underlying objectives of certainty and maintaining cashflow. Significantly, the Court rejected the argument that it should preserve the parties’ intended 30-day payment period through a modified application of the Scheme. Once the contractual mechanism failed to comply with section 110(1)(b), the statutory consequence followed that the Scheme was incorporated to the extent necessary to remedy the non-compliance. The result may be that the parties fail to follow the payment mechanism correctly, unaware that the applicable deadlines are those which are implied by the Scheme.
Deerns is yet another reminder to contracting parties that, when drafting and negotiating construction contracts within the scope of the HGCRA, care must be taken to ensure that the final date for payment is a fixed and certain period after the due date. Failure to do so risks the agreed payment regime failing in whole or in part,and being replaced by the relevant provisions of the Scheme, with potentially significant consequences for both payees and paying parties. As in Deerns, the consequence may be an unwitting failure to comply with deadlines for service of payment notices or pay less notices, and the resulting risk of a default payment adjudication.
