In Placefirst Construction Ltd v CAR Construction (North East) Ltd, the Technology and Construction Court ("TCC") declined to enforce an adjudicator's decision that a contractor had failed to issue a valid payment notice or pay less notice under the Housing Grants, Construction and Regeneration Act 1996.
Background
Placefirst Construction Ltd ("Placefirst") was the contractor on a construction project at Ridding Road, Esh Winning, Durham. CAR Construction North East Ltd ("CAR") was the subcontractor for this project. The terms of the parties' subcontract of October 2022 relating to interim payments largely mirrored clauses 4.6 to 4.10 of the Joint Contracts Tribunal ("JCT") Design and Build Contract (2016 edition). These clauses in turn largely reflect the provisions of the Housing Grants, Construction and Regeneration Act 1996 ("1996 Act").
The 1996 Act sets out procedures for the issuing of payment notices by the payer (in this case, Placefirst) and/or payee (in this case, CAR).
- Payment notice by the payer: S 110(A)(1) of the 1996 Act requires the payer to issue a payment notice setting out the amount it considers to be due within five days of the payment due date.
- Payee application for payment: If the payer's payment notice is not given, S 110(B)(4) of the 1996 Act provides that the payee may make an application for payment setting out the amount it considers to be due.
- Pay less notice by the payer: S 111(3) of the 1996 Act provides that the payer may set out in a 'pay less notice' the amount it considers due, taking into account any deductions or cross claims.
S 111(5)(b) of the 1996 Act provides that a pay less notice "may not be given before the notice by reference to which the notified sum is determined."
On 24 July 2024, CAR emailed its interim payment application ("AFP 30") for July to Placefirst. On 31 July 2024 (before the final date for payment), Placefirst sent an email with two attachments: a letter purporting to be a pay less notice and an Excel workbook described as "Valuation 30". The letter/pay less notice explained that Placefirst considered the amount due to be minus £22,812.15 because of a deduction for loss and expense. The second tab in the workbook was headed "subcontract payment certificate", which Placefirst contended was intended to perform the function of a payment notice.
CAR disputed its obligation to pay Placefirst the negative figure, whilst Placefirst disputed its obligation to pay CAR's AFP 30 sum, which led to adjudication proceedings. In October 2024, the adjudicator decided in favour of CAR and ordered Placefirst to pay £867,031.06 plus VAT as per CAR's AFP 30. He decided that Placefirst had failed to validly serve either a payment notice or a pay less notice.
Both parties applied to the TCC. CAR sought to enforce the adjudicator's decision, and Placefirst sought a final decision on the dispute.
Decision
The Court declined to enforce the adjudicator's decision, ruling in favour of Placefirst. It held that Placefirst had served an effective payment notice as well as an effective pay less notice.
Validity of the pay less notice
CAR's case was that the pay less notice was invalid because it was served before the date it could validly have been served. This was because, CAR argued, the pay less notice preceded the issuing of a notice determining the "notified sum" under S 111(5)(b) of the 1996 Act (set out above).
Dissecting the provisions of the 1996 Act, the Judge held that a "notified sum" could validly be provided in a payee's application for payment. On an objective reading of the provisions of the 1996 Act, the Judge held there is "no logical reason why a payless [sic] notice should not be given before the time for giving a payment notice has elapsed." It is not the case that a payer must first issue a payment notice and follow this with a pay less notice. There is no difference between the content of a payment notice and a pay less notice, and the decision of which one to issue is up to the payer.
Clause 4.6 of the subcontract, which amended the standard JCT form, required CAR to submit interim payment applications in a form that met the requirements for a valid payment notice. CAR's interim payment application of 24 July 2024 thus effectively determined the "notified sum." So, Placefirst's pay less notice given on 31 July 2024 was not given earlier than required and was held to be effective.
Validity of the payment notice
The Court stressed again that the required content of a payment notice and pay less notice are "precisely the same." The two types of notice are required to do the same thing: to state the sum considered to be due and the basis for its calculation. However, one notice cannot operate as both a payment notice and a pay less notice.
The Court held that the workbook issued by Placefirst entitled "subcontract payment certificate" was intended to have effect separate from the pay less notice, and amounted in substance to a payment notice. Thus, Placefirst had validly issued a payment notice.
Key takeaways
Key points arising from this case include:
- Since the content of a payment notice and pay less notice can be exactly the same, the 1996 Act does not require both to be issued for either notice to be valid.
- One document cannot be issued as both a payment and pay less notice.
- If a payee makes an application for payment which determines
the sum to be paid at the relevant date, it is a valid payment
notice from the date of issue.
- In these circumstances, a payer can validly issue a pay less notice and payment notice at the same time.
- A payer does not have to issue a payment notice before issuing a pay less notice if the payee has issued an application for payment which determines the "notified sum" in terms of the 1996 Act.
- The parties' amendments to the JCT form of contract made it such that the payee's application for payment met the requirements for a valid payment notice under the 1996 Act. The standard JCT wording does not necessarily fulfil these requirements.
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