Implying key payment terms into a construction contract: Deerns UK Ltd v VDC LHR11 Ltd [2026] EWHC 1509 (TCC)

The recent decision of the TCC in Deerns is a straightforward reminder of how strictly the Courts will apply the payment regime under the Housing Grants, Construction and Regeneration Act 1996 (“HGCRA”) and imply terms from the Scheme for Construction Contracts (“the Scheme”) where the underlying contract does not comply. The extent of those implied terms will depend on the non-compliance.

The Court found that a consultancy agreement between the parties failed to include a compliant mechanism for determining the final date for payment. As a result, the Scheme’s provisions for calculating the final date for payment were implied into the contract. Consequently, the employer’s pay less notices were late and ineffective, and the consultant was entitled to the full notified sum.

In addition to challenging terms being implied into the contract as a matter of interpretation of the contract against the requirements of the HGRCA, the defendant also raised arguments as to estoppel, procedural objections to the use of Part 8 procedure, and a request to delay payment. These were all rejected.

At its core, the case reinforces a familiar message: in construction payment disputes, process is everything. Drafting must be precise, and deadlines are strict.

Key Takeaways

• Precise drafting: Payment clauses must clearly and reliably fix the final date for payment, or risk the Scheme stepping in.
• Deadlines are critical: A late pay less notice will almost always be fatal. Ensure due dates and payment dates are diarised.
• Estoppel is rarely available: The courts set a high bar where statutory payment rules are engaged. If parties genuinely have a shared understanding, record it in the contract.
• Cashflow prevails: Delaying payment is difficult unless there are exceptional circumstances.

Background

VDC, a developer, engaged Deerns to provide engineering consultancy services on a North London project. Deerns submitted two applications for payment totalling £910,501.71 plus VAT. VDC responded with two pay less notices, relying on the contract’s timing provisions.

Deerns argued that the contract did not comply with s.110(1)(b) HGCRA because it failed to set out a clear mechanism for determining the final date for payment. That meant the Scheme was implied into the contract to the extent necessary to rectify the default, bringing with it a stricter timetable for the payment procedure. On that basis, VDC’s pay less notices were late and so invalid.

Deerns brought a Part 8 claim for full payment of the sums applied for.

VDC disagreed with Deerns’ position. It argued that the contract was compliant when properly interpreted and that its notices were therefore valid. It also contended that, in practice, both parties had operated on the shared understanding that the contract was compliant, and that Deerns was thus estopped from bringing a claim of non-compliance. On that footing, it argued the case was not suitable for a Part 8 determination as it required substantive disputes as to fact.

Decision

The Court found for Deerns on all points.

The key point was that the contract did not provide a sufficiently clear and fixed final date for payment. Clause 7.2 of the contract provided for a final date for payment 30 days after the due date but allowed the final date to be delayed if Deerns’ payment application was issued late. Whilst perhaps commercially sensible, that lack of certainty as to final date for payment made it non-compliant with HGCRA.

As a result, the Scheme applied by default. Under the Scheme’s shorter timetable, VDC’s pay less notices were served too late and were ineffective. The notified sum was therefore payable in full.

The estoppel argument failed due to a lack of clear evidence of a shared assumption. With no real factual dispute, the Court considered that the use of Part 8 was appropriate. The Court also refused VDC’s request to stay proceedings, finding that it had not demonstrated sufficient grounds to justify withholding payment.

Commentary

Deerns is a useful illustration of how little room there is for flexibility in this area.

First, it highlights the continued importance of getting payment drafting right from the outset. Even relatively sophisticated contracts will be closely examined against the statutory requirements. If the mechanism for fixing the final date for payment is not clear and certain, the Scheme will step in, and it will do so strictly, without attempting to “fix” the parties’ wording.

Secondly, the Court’s treatment of estoppel is a reminder of how difficult it is to rely on course of dealing in this context. Parties, often working in the context of multi-year projects, may assume that if they have been operating on a shared understanding that that can override defects in contractual provision. The bar to estoppel is high. Unless there is clear, mutual and unequivocal conduct, generally requiring the acknowledgment of both parties, the courts are unlikely to let estoppel cut interfere with the statutory regime.

Thirdly, the refusal to delay enforcement reflects the broader policy of maintaining cashflow in the industry. Arguments based on financial risk continue to face an uphill battle unless there is compelling evidence of real injustice.

If you have any questions regarding the information discussed in this article, please contact James Vernon.