Confusion over payment

Despite the fact that the Housing Grants Construction and Regeneration Act 1996 (“the Act”), as amended, introduced the notified sum regime in 2011, there are still cases coming through where parties have got into difficulties with the proper issuing of payment notices and pay less notices.

A recent illustration of this was in the case of Placefirst Construction Limited v CAR Construction (North East) Limited [2025] EWHC 100 (TCC). In this case, an interesting question arose as to what happened when a paying party served its payment and pay less notice at the same time, and how those notices interact with the unpaid party’s interim application for payment.

In this case the parties’ contract was based on an amended Joint Contracts Tribunal (“JCT”) Design and Build Sub-Contract, 2016 edition (“DBSub/C 2016”). In July 2024, the sub-contractor (“CAR”) issued interim application 30 (“IA30”), claiming just over £867,000.

In response, the contractor (“Placefirst”) sent an email attaching correspondence and an excel workbook, documents it said included the “sub-contract payment certificate” and pay less notice, which concluded that a minus figure was due to CAR. CAR disagreed and referred the dispute to adjudication.

The adjudicator agreed with CAR and decided that Placefirst had failed to serve a payment notice or an effective pay less notice. He awarded the sum claimed to CAR. Placefirst challenged the validity of the adjudicator’s decision on a point of law and CAR issued proceedings to enforce the adjudicator’s decision, with both applications heard together.

The judge declined to enforce the adjudicator’s decision, holding the adjudicator was wrong to conclude that Placefirst had failed to serve a payment notice or effective pay less notice. In reaching this conclusion, the judge considered the case law and concluded that the court should have an objective approach to interpretation, considering how a reasonable recipient would understand the notices, and should not take a separate approach to different kinds of notices.

The judge held that IA30 complied with the requirements of the parties’ amended contract and met the requirements of a payment notice, even though it could only take effect as a payment notice if Placefirst failed to serve its payment notice. This means IA30 was effective on the date it was sent, not a later date. As such, Placefirst’s pay less notice was not served early – that is, before the notified sum was identified in the payment notice – rather it was valid and could be relied upon.

The judge commented that the Construction Act does not require the payer to serve a payment and a pay less notice if they contain the same information but that one notice cannot operate as both. Here, Placefirst had sent a pay less notice and a “valuation and a sub-contract payment certificate” in response to IA30. This document was not purely “subsidiary to the pay less notice” when read in the context of the Act, the sub-contract and how interim payments are commonly dealt with. Rather, it was “sufficiently clear on an objective analysis” that it was intended as a payment notice separate and distinct from the pay less notice it was sent with. Thus, the payment notice was also valid. In the circumstances of this case, it was permissible for Placefirst to serve both notices together following receipt of IA30.

However, before relying on this judgment, parties should consider the wording of the payment provisions in their contract. Here the parties had amended clause 4.6.2 of the JCT DBSub/C 2016 to provide that an interim application for payment should include “a statement of the sum that [CAR] considered to be due at the date when the relevant interim payment shall be calculated and the basis on which the sum is calculated”.

This is subtly different to the standard wording, referring to a sum that will become due at a future date, and meant the amended clause complied with Section 110A(3)(a) of the Construction Act 1996, whereas the standard wording did not, the judge held.

Whilst the facts of this case are slightly unusual, difficulties could have been avoided if Placefirst had simply served an ordinary payment notice in time setting out the sum due. It would not have needed to serve a pay less notice as well, unless subsequent events meant that it considered even a lesser sum was due.