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Lidl v 3CL - Estoppel by Convention

A recent judgment from the TCC has provided guidance on a number of issues which are relevant to those working on construction and engineering projects.

The case of Lidl Great Britain Ltd and Closed Circuit Cooling Limited t/a 3CL deals with the issue of whether the final date for payment for an interim payment can be linked to an invoice. The TCC confirmed that the final date for payment must be pegged to the due date, and so this case clarifies this issue. However, the issue which this case covers that will possibly have more bearing on payment disputes in the future is how the Court dealt with the principle of estoppel by convention.

The principle of estoppel by convention has been dealt with previously by the courts, so is not a new concept, however in this case the Court applied the principle wholesale across a number of issues.

The legal principle of estoppel by convention was set out in the judgment, and is that

“Where parties to a transaction proceed on the basis of an underlying assumption on which they have conducted their dealings between them, neither will be allowed to go back on that assumption when it would be unfair or unjust to do so.”

The above principle has been applied, and was applied in this case, to the issue of whether an interim payment application was or was not valid.

In this case, the contract between the parties required 3CL, as the party seeking payment, to provide certain documents along with its applications for payment. The contract required 3CL to adequately identify the milestones for which it was claiming payment, photographic evidence that the said milestones were actually complete and to provide evidence of renewals of relevant insurances or evidence that the insurances were being maintained.

In its application number 19, 3CL did not provide the required information, but it had not done so for all previous 18 applications for payment either. Crucially, Lidl had not raised the issue of the non-provision of the relevant information previously, and had valued and paid sums against each of the previous 18 applications.

Lidl sought to rely on the terms of the contract to say that 3CL’s application was invalid because of the non-provision of the contractually mandated information.

The Court held that Lidl could not rely on the terms of the contract, because the parties had been proceeding on the underlying assumption that the documents specified in the contract were not required in order for an application for payment to be valid.

Lidl also argued that, as there was a no waiver provision (which states that the waiver of strict contractual rights will not preclude a party from strictly applying them in future), it was entitled to rely on the terms of the contract which required the relevant information to be provided with each application. The Court gave this short shrift, and said that, even if there is a no-waiver provision in the contract in question, as there was here, waiver and estoppel are two different legal principles, and so the no waiver provision did not help Lidl in this case.

There is often an argument in payment adjudications that parties have established a course of dealings contrary to the express provisions of the contract. This case reinforces that the courts, and so adjudicators, will have to consider the question of whether an estoppel by convention is established. Whether there is such an estoppel will obviously be fact specific and dependent on the circumstances and context of the relevant application for payment. In this case there had been 18 previous applications where the relevant information had not been provided nor asked for. What would have happened if Lidl had requested, for example, photographs showing a milestone had been completed once? What if they had requested the photographs twice or three times? This may well have changed the direction of the judgment. Each case will be fact sensitive.

If you are party making payment, if there are terms of the contract which require the party seeking payment to provide some information in order for the application to be valid, the key take-away from this case is that if you want to strictly apply those terms of the contract, you must do so consistently.

If you are a party seeking payment, the advice would always be to comply with the terms of your contract, but if you and the party from whom you’re seeking payment also haven’t complied with the terms of the contract, it may still be possible to establish an estoppel by convention and so enforce your right to payment via this route.

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