High performing construction barrister and Head of Chambers, Charles Edwards, reviews the recent Technology and Construction Court which provides very useful guidance on payment and payless notices: Placefirst Construction Ltd v Car Construction (North East) Ltd [2025] EWHC 100 (TCC).
Key issues for the High Court Decide: Payment and Payless Notices
The High Court had to decide two key issues:
(1) whether the Contractor’s Payless Notice was invalid because it was served earlier than required in accordance with Housing Grants, Construction and Regeneration Act 1996 (as amended); and
(2) whether the Contractor had served a Payment Notice in accordance with Part 2 of the Housing Grants, Construction and Regeneration Act 1996 (as amended).
These two issues were summarised by the court at for determination as follows (paragraph 12 of the Judgement):
“… a. First, whether Placefirst [the Contractor] did serve what was, on an objective analysis, intended and understood to be a payment notice in accordance with Part 2 of the Housing Grants, Construction and Regeneration Act 1996 (as amended) (“the Act“) and the subcontract. This involves an application of established principles to the particular facts of this case.
b. Second, whether Placefirst’s [the Contractor] payless notice was invalid because it was served (on CAR’s case) [Subcontractor] in advance of the date when it could properly have been served under the Act and the subcontract. This is a point on which I am told there is no authority.”
[emphasis added]
Adjudicator’s Decision
This dispute was originally decided by adjudicator in favour of Car Construction (North East) Ltd (“the Sub-Contractor”), requesting Placefirst Construction Ltd (“the Contractor”) to pay the Sub-Contractor £867,031.36 in what is known as smash and grab adjudication.
Part 8 proceedings/Enforcement proceedings
The Contactor issued its Part 8 claim on 5th November 2024 for the High Court to determine the matter in accordance with the principles summarised by Coulson LJ in A&V Building Solutions v J&B Hopkins [2023] EWCA Civ 54, at pars 34 – 40 (referring to the TCC Guide at sections 9.4.4 to 9.4.5).
The Sub-Contractor, some three later on 8th November 2024 issued its Part 7 claim for enforcement proceedings of the adjudicator’s Decision against the Contractor in the sum of £867,031.36.
The Court decided that both the Part 8 claim and the Part 7 enforcement proceedings should be dealt with at the same hearing.
Factual Background
The Sub-Contract agreement between the Contractor and Sub-Contractor comprised of a JCT Design and Build 2016 form of Subcontract (as amended) (the Sub-Contract). The payment terms including the timing of interim applications, payment notices, and payless notices were set out in clauses 4.6 to 4.10 of the Sub-Contract. In accordance with the Sub-Contract, the Contractor was required to pay the amount specified in the payment notice or, if there was no payment notice, the interim payment application by the final date for payment. This was subject to the Contractor having given the payless notice no later than 2 days before the final date for payment, in which case the Contractor’s obligation was to pay the amount specified in the payless notice.
The gross valuation for each interim payment was to be calculated in accordance with detailed provisions in clause 4.9 of the Sub-Contract as amended which permitted the Contractor to deduct any amounts which it was entitled to withhold, deduct, or set off under the Sub-Contract.
On 24th July 2024, the Sub-Contractor emailed the Contractor its interim application for month ending 31st July 2024.
On 31st July 2024, the Contractor emailed the Sub-Contractor together with two attachments. The subject line of Contractor’s email stated: “CAR Construction Payless Notice and Valuation 30”. The attachments were identified as “Valuation 30 – Payless Notice.pdf” and “Valuation 3.xlsm”. The Contractor’s email read (paragraph 31 of the Judgment):
“Please find the attached Payless Notice and Valuation 30 to support, in relation to your AFP 30 received on 24th July 2024. In consideration of the delays to the sub-contact works there is a balance due in the sum of (£22,812.15)”.
The Contractor’s attached letter dated 31st July 2024, provided a summary as to how the gross amount had been calculated and how the amount due of -£22,812.15 was arrived at. This letter stated as follows (paragraph 32 of the Judgment):
“We write further to your application for payment email dated 24 July 2024. We provide our Pay less notice under paragraph 10 of Part II of the Scheme for Construction Contracts (England and Wales) Regulations 1998 (SI 1998/649) (as amended) and section 111 of the Housing Grants, Construction and Regeneration Act 1996 (as amended). We consider that the gross amount due on the date this notice is served to be £2,769,275.56 (excluding retention and VAT) in accordance with our assessment of the works reference Esh Winning – Car Construction – Valuation 30 which has been enclosed for your information.”
It was clear from the information, that the Contractor had deducted the amount of £141,501.43 for loss and expense, in order to arrive at a negative amount. The Excel Spreadsheet attached to the Contractor’s email included a number of different tabs. The first tab contained the same information as provided in the letter, under the heading of “Summary”. The second tab was titled “Payment Certificate” and the worksheet set out therein was headed “Subcontract Payment Certificate” and identified the invoice number as “val30” and the certificate number as “pf30”. Further, it stated the date to be 31st July 2024 and also stated payment due no later than 28th August 2024 which was the final date for payment in accordance with the Sub-Contract. In addition, there were other worksheets which provided further backup for the summary and the Sub-Contract payment.
High Court: Technology and Construction Court proceedings/analysis included
The High Court considered the relevant payment provisions of the Act, in particular, sections 110A (Payment notices: contractual requirements), 110B (Payment notices: payee’s notice in default of payer’s notice), and 111 (Requirement to pay notified sum). At paragraph 39 of the Judgment the High Court quoted the extremely helpful summary of the law on the interpretation of notices set out by Joanna Smith J at paragraphs 46 and 47 of the Judgment of Advance JV v Enisca Limited [2022] EWHC 1152 (TCC):
“46. I was taken during the hearing to a number of authorities in the context of the proper approach to be taken by the court to the interpretation of contractual notices, including Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 (“Mannai”), Thomas Vale Construction Plc v Brookside Syston Ltd [2006] EWHC 3637 (TCC) (“Thomas Vale”), Henia Investments Ltd v Beck Interiors Ltd [2015] BLR 704 (“Henia”), Jawaby, Surrey and Sussex Healthcare NHS Trust v Logan Construction (South East) Ltd [2017] BLR 189 (“Surrey and Sussex”), Grove Developments Ltd v S&T (UK) Ltd [2018] BLR 173 (“Grove Developments”) and S&T (UK) Ltd v Grove Developments Ltd [2019] BLR 1 (“S&T”) (in which the Court of Appeal upheld the reasoning of the Judge on this issue at [57]). There is no need to set these out at length; the principles that they establish and which I must apply in this case are uncontroversial.
47. In summary, the approach to be taken by the court as gleaned from these authorities is as follows:
i) In considering the true construction of a contractual notice (including notices under the payment regime in the Act – see Grove Developments per Coulson J at [21]-[22] and S&T in the Court of Appeal at [58] per Sir Rupert Jackson), the question is not how its recipient in fact understood it. Instead “the construction of the notices must be approached objectively. The issue is how a reasonable recipient would have understood the notices”, i.e. a reasonable recipient “circumstanced as the actual parties were” (see Mannai at 767 G-H and 768B-C per Lord Steyn).
ii) The notice must be construed taking into account the “relevant objective contextual scene”, i.e. the court must consider “what meanings the language read against the contextual scene will let in” (see Mannai at 767H and 768A-B). This means that, amongst other things, the reasonable recipient will be credited with knowledge of the relevant contract (see Mannai at 768B-C).
iii) The purpose of the notice will be relevant to its construction and validity (Mannai at 768E).
iv) The court will be “unimpressed by nice points of textual analysis or arguments which seek to condemn the notice on an artificial or contrived basis” (Thomas Vale per HHJ Kirkham at [43]; Grove at [26]). Instead, as Sir Peter Coulson says in paragraph 3.36 of his book on Construction Adjudication (4th ed. 2018), focusing specifically on Pay Less Notices:
“The courts will take a commonsense, practical view of the contents of a payless notice and will not adopt an unnecessarily restrictive interpretation of such a notice…It is thought that, provided that the notice makes tolerably clear what is being held and why, the court will not strive to intervene or endeavour to find reasons that would render such a notice invalid or ineffective”.
v) There is no principled reason for adopting a different approach to construction in respect of different kinds of payment notices (for example because some may give rise to more draconian consequences than others) as that would be contrary to the guidance in Mannai (see Grove at [27]).
However:
“the particularly adverse consequences for an employer that follow from, say, a contractor’s unanswered application/payment notice are relevant to the test of the reasonable recipient”.
vi) To qualify as a valid notice, any payment notice must comply with the statutory (and, if more restrictive, the contractual) requirements in substance and form (Henia per Akenhead J at [17]). Payment notices and Pay Less Notices must clearly set out the sum which is due and/or to be deducted and the basis on which the sum is calculated. Beyond that, the question of whether a notice is or is not a valid notice is “a question of fact and degree” (Grove at [29] and S&T at [53]).
vii) Over and above the question of whether a notice has achieved the required degree of specificity, will be the additional question of whether the document that is alleged to constitute a valid notice was in fact intended to be such and whether it is “free from ambiguity” (Henia at [17] and Grove at [42]). The sender’s intention is a matter to be assessed objectively taking into account the context. (Jawaby at [43], [59] and [63]).
viii) Although in Grove, Coulson J observed that payment notices must make plain what they are, there is no requirement for a particular type of notice, such as a Pay Less Notice, to have that title or to make specific reference to the contractual clause in order to be valid: “[t]he question is whether, viewed objectively, it had the requisite intention to fulfil that function” (Surrey & Sussex at [65]).
ix) One way of testing the validity or otherwise of a Pay Less Notice will be to see whether it “provided an adequate agenda for an adjudication as to the true value of the Works…” (Henia at [32] and Grove at [26]).”
Issue 1 – Was the payless notice a valid payless notice?
The High Court decided to consider the validity of payless notice first as if this was in favour of the Contractor, then the second question would not need to be answered.
It is the Sub-Contractor’s case that the Contractor’s payless notice was invalid because it was served before the date when it could validly have been served in accordance with Act and/or the Sub-Contract. The payless notice, issued by the Contractor, complied with the requirements in subparagraph (a) of section 111(5) of the Act in terms of form and content, the only dispute remaining was the further requirements of subparagraph (b) and that “…case referred to in subsection (2)(b) or (c), it may not be given before the notice by reference to which the notified sum is determined”. The relevant sections of the Act, include:
“(2) For the purposes of this section, the “notified sum” in relation to any payment provided for by a construction contract means—
(a) in a case where a notice complying with section 110A(2) has been given pursuant to and in accordance with a requirement of the contract, the amount specified in that notice;
(b) in a case where a notice complying with section 110A(3) has been given pursuant to and in accordance with a requirement of the contract, the amount specified in that notice;
(c) in a case where a notice complying with section 110A(3) has been given pursuant to and in accordance with section 110B(2), the amount specified in that notice.
(5) A notice under subsection (3)—
(a) must be given not later than the prescribed period before the final date for payment, and
(b) in a case referred to in subsection (2)(b) or (c), may not be given before the notice by reference to which the notified sum is determined.”
The High Court’s the court stated the following applied (paragraph X of the Judgment):
- Subsection (2)(b) applies in a case where a notice compliant with section 110A(3) has been given pursuant to and in accordance with the provisions in the Sub-Contract.
- Subsection (2)(c) applies in a case where a notice compliant with section 110A(3) has been given pursuant to and in accordance with section 110B(2).
- The sole purpose of subsection 111(2) appears to be specifying the meaning of a notified sum for the purpose of a definition of a payless notice in subsection 111(3).
- Subsection 110A(3) applies to notices required to be given by a payee and specifies the requirements with which it must comply in order to be a valid payment notice. The Court found section 110A(3) does apply for the following reasons:
“a. Under the amended form of subcontract CAR was required by clause 4.6 to submit an interim payment application which was to include “a statement of the sum that [CAR] considers to be due to him … at the date when the relevant interim payment shall be calculated and the basis on which that sum is calculated” (emphasis added). This was subtly different to clause 4.6.2 of the standard form which, where the subcontract particulars state that it applies, the sub-contractor is required to submit an application “stating the sum the sub-contractor considers will become due to him at the due date and the basis on which that sum is calculated” (emphasis also added).
b. The wording as amended complies with s.110A(3)(a), whereas the unamended wording does not, because it refers to a sum the sub-contractor considers will become due at a future date. In my judgment s.110A(3)(a) cannot properly be read as if it said “the sum that the payee considers to be or to have been due or that will become due at the payment due date” (underlining added).
c. It follows that the interim payment application given by CAR in compliance with the contract as amended met the requirements of a payment notice under s.110A(3), even though it would not have the effect of a payment notice unless and until Placefirst had failed to give a valid payer’s payment notice.
d. It also follows that on the hypothesis identified in paragraph 40 above, i.e. that Placefirst did not serve a valid payment notice, then s.111(2)(b) applied, because the interim payment application was the relevant notice, and it thus follows that Placefirst’s payless notice was not given “before the notice by reference to which the notified sum is determined”.
The Court further stated that in any event, section 110A(3) would apply indirectly via section 111(2)(c). This is through section 110B which deals with payee payment notices in default of a payer’s payment notice. This section applies to this Sub-Contract because it required the Contractor to give a compliant payment notice, not later than 5 days after the payment due date and on the Sub-Contractor’s analysis, it did not do so. Therefore, the requirements of subsection 110B(1) are satisfied, and thus 110B applies (paragraph 53 of the Judgement). Subsection 110B(2) of the Act allows the payee in such a case to give section 110A(3) compliant notice “at any time after the day on which the payment notice was required to be given”. However, this is subject to subsection (4). Subsection (4) applies whereas in this case, the Sub-Contract permits or requires the payee to give an advanced payment notification and the payee does so. In such a case, that notification is to be regarded as a notice complying with section 110A(3) given pursuant to subsection (2).
The Contractor’s argument included submission that subsection 110B(4) and 111(5)(b) read together simply have the effect that the interim payment application is regarded as a payee notice which takes effect as such on the date when it was in fact sent (paragraph 57 of the Judgement).
The Sub-Contractor’s argument included (paragraph 58 of the Judgement):
“…is that because subsection 110B(2) only permits a payee notice to be given “at any time after the date on which” the payer’s payment notice must be given (i.e. five days after the payment due date), it follows that the “deemed” notice under subsection 110B(4) must be regarded as having been given no earlier than after five days after the payment due date. His submission is that, since unless and until that date arrives and the payer fails to serve a valid payment notice, it is unknown as to whether or not the interim payment application will or will not become a deemed payee notice, it must follow that it is only on that date that it can become an effective payless notice.”
Whilst the High Court found the Sub-Contractor’s arguments to be ingenious, the High Court found that there were two reasons why this submission was wrong.
In summary, the first reason was that there is nothing in the express wording of the clauses of the Sub-Contract which dictates such a conclusion (paragraph 60 of the Judgement). The Sub-Contract simply states that the notice is to be regarded as being a section 110A(3) notice and that a payless notice must not be given before the date of such notice. It does not say “that the notice is either deemed to have become a payment notice or treated as having been given six days after the payment due date. They simply say that the notice is to be regarded as being a section 110A(3) notice and that a payless notice must not be given before the date of such notice. As a matter of literal interpretation this does not state that the interim payment application given on [X] date is to be later transmuted into a payee payment notice given on [Y] date; it simply: (a) provides that the interim payment application given on [X] date is to be regarded as a payee payment notice; and (b) requires that any payless notice is not to be given before the same [X] date.”
The second reason was that there was no compelling reason why the court should read the provision in the way submitted by the Sub-Contractor. The literally reading of the provision was not consistent with the intended purpose. Further, although it is true that the interim payment application will only become a payment notice after the time for the payer to give a payment notice has elapsed, there is no compelling reason why it should have been intended that the payer should be unable to give a payless notice before that date.
The Court stated that the reason why a payless notice should not be given before the interim payment application is given is fairly obvious, because otherwise there would be no known sum from which a deduction could be made. Whereas “there is no logical reason why a payless notice should not be given before the time for giving a payment notice has elapsed. As is apparent from the description in the Act (and in the subcontract), and as is considered further below, there is no difference of substance between the content of a payment notice and a payless notice. Thus, the decision whether or not to serve a payment notice and a payless notice, or just to serve only one or the other, rests entirely with the payer. Its choice does not prejudice the payee one way or another. Indeed, if the payer had to wait until the interim payment application was deemed to have become a payee notice, that would potentially prevent the payee from obtaining an earlier payment of the amount which the payer included in its payless notice”. Also, as the court stated: “the object of the Act was to improve cashflow that would be an odd result. Further, it would surely also increase the risk of the payer being required, but failing, to serve the payless notice in what may well be a very narrow time window. There is no compelling reason in my view to adopt an interpretation which has such unhelpful consequences to one or other of the parties”.
The Technology and Construction Court ruled in favour of the Contractor on the first issue.
Issue 2 – Did the Contractor give a payment notice on 31 July 2024?
The Court made it clarified that in accordance with the Act, what was is required to be stated in a payment notice and what was required to be stated in a payless notice was precisely the same and both notices are required to do the same thing., i.e. state the amount that the payer or payee considers to be due and the basis on which that sum is calculated. The Court also cited Sir Peter Coulson and in stating that one notice cannot operate as a payment notice and as a payless notice. “This is the conclusion reached by Sir Peter Coulson (writing extra-judicially) in Construction Adjudication at paragraph 3.28, where he identifies the fifth critical element of the amended Act as being that: “The original provisions, which entitled a payer to serve a notice, operating as both a payment notice and a withholding notice, have been deleted in their entirety. Thus the payer must serve both the payer’s notice and a payless notice in accordance with the new s111 in the periods identified”. (In referring to serving both a payer’s notice and a payless notice I do not read him as saying that the payer must serve both, only that both must be served within the identified period if they are to be relied upon.) There appears to be no judicial determination on this point (as I noted in paragraph 33 of my judgment in Lidl v 3CL [2023] EWHC 2243 (TCC)), however this extra-judicial observation commands respect and, in my respectful view, is correct…”.
The Court also found that there is no reason in principle why a payment notice and a payless notice could not be served at the same time under cover of the same email or letter (paragraph 69 of the judgment).
The Sub-Contractor’s submission on the second issue was as follows:
“ …was that the worksheet could not objectively have been intended and understood as a payment notice for a number of reasons, specifically that: (a) it did not describe itself as a payment notice (unlike the payless notice, which did describe itself as such) nor did it refer to the relevant section of the Act or clause of the subcontract providing for the giving of a payment notice (or the relevant paragraph of the Scheme – as the payless notice did, albeit incorrectly as the Scheme did not in fact apply) ; (b) instead, it described itself as a subcontract payment certificate, in circumstances where there is no such animal in the subcontract (even if there is the notice given by a specified person in s.110A(2)(b), which is what a certificate would be if the contract made provision for certificates); (c) it did not read as a payment notice, because it did not state the sum that Placefirst considered due at the payment due date; (d) it was not objectively intended to have an existence or function independent of the payless notice, since it was expressly described in the email as “valuation 30 to support” the payless notice and since it was expressly identified in the payless notice as being “enclosed for your information”.
The court’s view on further submissions made included:
- There was no requirement that a payment notice had to expressly state the sum stated was that which was that which the payer considered due at the ‘due date’.
- The Sub-Contract in this case allowed for specific deductions to be made from the gross valuation, including loss and expense and these would not have been included unless the standard JCT Sub-Contract form had been amended.
- There is no prohibition on a payment notice being in a negative sum.
The Contractor’s submission on the second issue was as follows:
“(a) it was plain from the email that Placefirst intended to submit and did submit two separate documents, one being a payless notice and the other being a valuation; (b) the worksheet was, in form and in substance, a valuation such as one would expect to see in a payment notice.”
The Court also ruled in favour of the Contractor on the second issue.
Conclusion
The Technology and Construction Court, found in favour of the Contractor on both key issues, 1 and 2 which it had to determine. Further, it was only necessary for the Contractor to serve a valid payless notice, and the payless notice served in this case was, on a proper analysis of the requirements of the Act, a valid payless notice.
Key points to note from the judgment include:
- The adjudicator’s decision requiring the Contractor pay the Sub-Contractor £867,031.36 was not enforced by the Court as it was wrong. Adjudicator’s decisions normally enforced even if they are wrong, so this was of those rare cases where the Court did not due to the adjudicator’s incorrect interpretation of the payment notices issued.
- The Court clarified that a payment notice and a payless notice can be served at the same time by email or letter, as long as they satisfy the Act and the relevant requirements in the contract.
- A document will not necessarily be interpreted as the title, and the content and its form are crucial in determining its validity.
The above is for general information only and to encourage discussion and does not constitute legal advice. The author does not assume any responsibility for the accuracy of any statements made and appropriate legal advice should be taken in each instance and relied upon before taking or omitting to take any action in respect of any specific matter
For further information with regard to the resolution of any construction dispute and payment related issues as set out above, please do not hesitate to contact, Charles Edwards, high performing Construction Barrister and Head of Chambers at New Temple Chambers on: charles.edwards@newtemplechambers.com to see find out how chambers can assist you or your organisation with any construction and engineering dispute.
Charles Edwin Edwards MSt(Cantab) MSc(Lond) MCIArb MRICS FCInstCES Barrister
New Temple Chambers
30 St Mary Axe
London EC3A 8BF
Tel: +44(0)203 289 8000
For further information with regard to the resolution of any construction dispute and payment related issues as set out above, please do not hesitate to contact, Charles Edwards, High performing Construction Barrister and Head of Chambers at New Temple Chambers on: charles.edwards@newtemplechambers.com to see how chambers can assist you or your organisation.
