The Technology and Construction Court provides guidance on payment notices, pay less notices and default payment notices in the recent judgment of Placefirst v Car Construction.
Background:
Placefirst was the main contractor, and Car was the subcontractor on a construction project in Durham. The parties entered into a subcontract on 26 October 2022 under a JCT Design and Build 2016 form of subcontract as modified by a schedule of amendments.
On 24 July 2024, Car submitted an interim payment application for the month ending 31 July 2024. On 31 July 2024, Placefirst sent an email with attachments. The subject line of the email stated ‘Car Construction Payless Notice and Valuation 30’. The attachments included a document titled ‘Payless Notice’ and a ‘Subcontract Payment Certificate’ worksheet.
Car commenced adjudication proceedings, and the adjudicator decided that Placefirst had failed to serve either a payment notice or an effective pay less notice, resulting in a decision that Placefirst should pay Car’s full interim application amount. Car sought to enforce the adjudicator’s decision by way of Part 7 proceedings and Placefirst raised Part 8 proceedings, seeking an expedited final determination that it had served a valid payment notice and/or an effective pay less notice, so that it would be unconscionable to enforce the adjudicator’s decision.
Both sets of proceedings were heard together on 20 December 2024. At the hearing, the Judge had two key issues for determination:
- Whether Placefirst 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) (“HGCRA 1996”) and the subcontract.
- Whether Placefirst’s pay less notice was invalid because it was served (on Car’s case) in advance of the date when it could properly have been served under the Act and the subcontract.
The contract terms as regards interim payments were to be found in clauses 4.6 to 4.10 of the JCT Design and Build 2016 Sub-Contract, as amended by the schedule of amendments in certain respects. It was common ground that the amendments substantially followed the payment provisions to be found within HGCRA 1996.
Decision:
The Court ruled in favour of Placefirst and held that it had served both a valid payment notice, and a valid pay less notice. Therefore, the court declined to enforce the adjudicator’s decision.
Pay Less Notice:
The Court found that Placefirst’s pay less notice, served on 31 July 2024 was valid. The Court interpreted HGCRA 1996, s110A(3) and 110B and concluded that Placefirst was entitled to serve the pay less notice on the date of Car’s interim payment application.
Payment Notice:
Although the decision on the pay less notice was sufficient to determine the dispute in Placefirst’s favour, the Judge considered whether the workbook, sent together with the pay less notice, amounted to a valid payment notice. The issue was whether the purported payment notice was intended to be separate and distinct from the pay less notice that it was sent with. The Judge decided that the worksheet was intended and would have been understood as a payment notice, separate from the pay less notice. The Judge made this decision based on the substance of the workbook, when read in the context of the HGCRA 1996 and the subcontract.
Conclusion:
The judgment provides an interesting analysis of the technical requirements of payment notices, pay less notices and payees’ notices in default under HGCRA 1996.
The Court considered that clause 4.6.2 in the standard form JCT Design and Build Sub-Contract 2016 did not comply with the payment provisions of HGCRA 1996, s 110A(3). This is because clause 4.6.2 requires that the sub-contractor’s payment application set out the sum ‘that will become due’ at the payment due date – whereas HGCRA 1996, s 110A(3) requires that a payee’s payment notice set out the sum that the payee considers ‘to be or to have been due’ at the due date. Substantially the same provisions are found in other forms of JCT sub-contract, including those in the JCT 2024 suite. This point was not analysed in detail in this case because the parties had amended clause 4.6.2 but it is possible that this issue will be revisited in a later case. Parties entering into JCT forms of contract might want to consider whether the provisions regarding service of the sub-contractor’s payment application should be amended in light of this judgment.
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