On WhatsApp contracts and the validity of payment applications

In a recent judgment, the High Court ruled that a WhatsApp exchange between a property developer and demolition contractor constituted a valid contract.

Jaevee Homes v Fincham discussed two main points, including whether a written formal contract existed between parties based on the informal WhatsApp and email communications; and whether the invoices issued by Steven Fincham (the Defendant) were valid payment applications as per the Housing Grants, Construction and Regeneration Act (HGCRA).

A valid contract requires four key elements: offer, acceptance, intention to create legal relations, and consideration.  

A common misconception among people unfamiliar with contract law is that a contract only exists when a formal document is signed. However, this is not the case.

Section 15(1) of the Electronic Communications Act 2000 defines electronic communication broadly as covering emails, social media, phone calls, texts, fax and websites.  

This means contracts can be formed verbally or via platforms like WhatsApp, Facebook, Instagram and TikTok. If a contract allows communication by “electronic means”, it is not limited to email.

In Jaevee’s case, the court found that Fincham provided a quotation on 11 May 2023 to Jaevee Homes (the Claimant), followed by email correspondence about it. A further written exchange occurred on 17 May 2023 through WhatsApp.

The Court held that the informal WhatsApp conversation constituted formal acceptance of Fincham’s quotation, forming an agreement. As this was a commercial transaction, the intention to create legal relations was presumed, thus confirming that a formal contract had been formed.

Although Jaevee issued a formal written contract titled ‘Shortform Subcontract’ to Fincham on 26 May 2023, the court ruled that its terms were not incorporated, as it was sent after the contract was formed on 17 May 2023, and it was not accepted by Fincham.

The court also considered whether an invoice listing the work done and stating the sum due without a detailed breakdown could qualify as a valid payment application. Jaevee argued it was invalid under the HGCRA, as it failed to provide “the basis on which that sum is calculated”.

In the 2018 decision of Grove Developments v S&T (UK) Ltd, the court held that a payment application or payless notice can satisfy the basis of calculation requirement if it refers to a detailed calculation set out in another clearly identified document provided to the other side.

In the S&T case and others, such as Mannai Investments Co Ltd v Eagle Star Life Insurance and Henia Investments Inc v Beck Interiors Ltd, the court ruled that a payment application or a payless notice should be construed with reference to its background, considering how a reasonable recipient would understand it.

The court emphasised that, in these cases, it would not be swayed by overly technical arguments or attempts to dismiss the notice on artificial grounds, and the notice should provide an adequate agenda for a dispute over valuation or any cross claims.

In Jaevee’s case, the court commented that assessing whether the invoices were properly set out was a question of fact and degree, which must be considered in the context of the contract.

The court considered that the invoices referred to Fincham’s quotation and marked-up plan. These invoices can be read together with Fincham’s quotation and in the context of the previous dealings between the parties.

In deciding whether the invoices were intended as payment applications, the court again stressed upon a fact-sensitive approach, considering the intent behind the payment notices.

It endorsed Fincham’s position that Jaevee’s arguments regarding the contract requirements, the application of the HGCRA/Scheme, and the validity of the invoices were overly rigid and disconnected from the practical realities of how such contracts commonly operate.

In the final analysis, the court found three out of four invoices as valid invoices and payment applications, thus confirming the findings of the S&T and various other case law.

One invoice was considered invalid because it was the second invoice issued in the same month.

In conclusion, the court observed that a strict interpretation of the HGCRA could make compliance nearly impossible for some parties, particularly contractors, undermining the Act’s purpose.  

It highlighted that overly technical requirements could unfairly deny parties their right to interim payments.

This suggests that a detailed mathematical breakdown of sums is not required for a valid payment application or payless notice, and the parties would continue to benefit from some flexibility in how the HGCRA is interpreted regarding the basis of calculation for these notices.

Nouman Qadir MCIOB is a junior associate at Quigg Golden specialising in construction law disputes.