Waiver and estoppel in interim payment disputes

A recent Court of Appeal decision is the first to consider waiver and estoppel arguments in the context of an interim payment application under a construction contract. The case concerned whether an interim payment application had been made validly within contractual timeframes.  The Court concluded that an estoppel was made out and highlighted the regularity with which such issues arise in adjudication enforcement, particularly for “smash and grab” adjudications.

A & V Building Solutions Ltd v J & B Hopkins Ltd

J & B Hopkins (“JBH”) was the main mechanical and electrical contractor on a university project in Sussex.  JBH engaged A & V Building Solutions Ltd (“AVB”) to carry out certain mechanical and electrical works at the site. The sub-contract entitled AVB to payment by instalments. Clause 9.2 provided that, as a “condition precedent”, AVB had to make monthly applications for payment on the dates specified in Appendix 6 to the sub-contract. 

On 22 March 2022, AVB issued interim application number 14 (“Application 14”).  However, the application date specified in Appendix 6 was 21 March 2022, the day before.  JBH replied on 1 April 2022, saying no further sums were due and that AVB had been overpaid.  During subsequent discussions and correspondence between the parties between April and October regarding AVB’s claim, JBH treated Application 14 as having been validly made.

On 19 October 2022, JBH’s solicitors asserted, for the first time, that Application 14 was not served in accordance with the provisions of the sub-contract.  The letter did not explain how or why that was the case.  AVB commenced an adjudication in November 2022 seeking payment based on Application 14.  The adjudicator agreed with AVB that Application 14 was valid under the sub-contract and awarded a net sum to AVB.

Whilst the adjudication was ongoing, JBH commenced Part 8 proceedings against AVB seeking a declaration as to the invalidity of Application 14.  At first instance, the court agreed, holding that a valid payment application could only be made on the specific date set out in Appendix 6.  Therefore, Application 14 was one day late and invalid.  The court also rejected AVB’s secondary submission that there had been a variation or a waiver of the application date of 21 March 2021.

Waiver and estoppel established

The Court of Appeal disagreed with the first instance judge on the interpretation of the sub-contract, finding that a note to Appendix 6 meant that the application dates specified were not as strict as JBH contended and that Application 14 had been validly issued. This meant it was unnecessary for the Court to reach a concluded view on AVB’s other grounds of appeal, however, the Court nevertheless considered the waiver and estoppel issues in obiter remarks, noting that such issues “regularly arise in adjudication enforcement, particularly arising out of 'smash and grab' adjudications”. 

AVB put forward two grounds to support a waiver or estoppel.  The first relied on a prior event, in 2020, when the application date fell on a Sunday and the application made on a Monday was paid by JBH.  This was rejected by Court, on the basis that the mere making of a payment in respect of a prior application is normally equivocal conduct that does not establish a common understanding sufficient to found a waiver or estoppel. Accordingly, “one instance of paying a late payment application is not generally sufficient to amount to a waiver”.

The second ground relied on JBH’s treatment of Application 14.  In disagreement with the TCC judge, the Court considered that the necessary ingredients for an estoppel had been made out:

• JBH’s email of 1 April 2021 said that it would treat Application 14 as superseding a previous application issued a week earlier. JBH then proceeded to respond to the application in detail.
   
• No attempt was made by JBH to reserve the position in respect of validity.
   
• Throughout the period between March and November 2021, both parties were operating on the basis that Application 14 was a valid application.  AVB relied on that common assumption to make Application 14 the focus of its adjudication.  If, at any point prior to that time, JBH had indicated that they considered Application 14 to have been served one day late, AVB could have taken the necessary steps to resolve that debate by repeating the claim for the next monthly cycle.
   
• Accordingly, JBH had unequivocally represented that Application 14 was valid. Had the application been found not to have been valid, AVB would have relied on JBH’s representation to its detriment by not correcting any invalidity before commencing its adjudication.

Conclusions and implications

This appears to be the first Court of Appeal decision in which waiver and estoppel arguments in relation to payment applications or payment notices have been considered. The guidance given by the decision is particularly welcome given, as the Court acknowledged, the frequency with which such arguments arise in “smash and grab” disputes. The fact that the Court differed from the TCC judge in its conclusion on these arguments demonstrates the need for greater clarity and consistency of approach in this area.

The case is also a timely reminder for parties to raise any potential issues with respect to the validity of interim payment applications or payment notices at the outset or to expressly reserve their position where there is any doubt as to questions of validity.

References:

A & V Building Solutions Ltd v J & B Hopkins Ltd [2023] EWCA Civ 54