Smash and grab adjudications are a regular occurrence in the construction industry, embodying the purpose of the Housing Grants, Construction and Regeneration Act 1996 as amended – 'pay now, argue later'. However, with smash and grab adjudications often relating to large disputed sums, parties continue to endeavour to find ways to substantiate compliance with the act.
In the previous decision in Lidl Great Britain Ltd v Closed Circuit Cooling Limited, the court provided extra judicial comment that you cannot have a hybrid payment notice and pay less notice. However, the question that arose in Placefirst Construction Ltd v CAR Construction Ltd is whether the two documents attached to one email were capable of being a valid payment notice and a valid pay less notice served at the same time. The court had to consider the timing and substance of the documents.
Placefirst was a main contractor and appointed CAR as a subcontractor under an amended JCT Design & Build 2016 Subcontract. A dispute arose from an interim payment application in which CAR was seeking £867,031.36 + VAT, and whether Placefirst had issued a valid payment or pay less notice in response.
The payment mechanism agreed in the contract was as follows:
CAR submitted an interim application for payment on 24 July 2024 for works valued up to 31 July 2024. On 31 July 2024, Placefirst sent an email to CAR enclosing a pay less notice and an excel document titled ‘Valuation 30’, with internal heading 'subcontract payment certificate', claiming that no payment was owed to CAR. Both documents assessed the same figure as due to CAR - £nil. No further notices were issued by Placefirst before the final date for payment.
CAR said no payment notice had been issued and the pay less notice issued by Placefirst was too early under the Housing Grants, Construction and Regeneration Act 1996 and under the contract, to be valid. CAR contended that the amount stated in its interim application for payment was the notified sum payable by the final date for payment.
Placefirst maintained that it had issued a valid payment notice and pay less notice.
CAR was ultimately successful in adjudication proceedings and the adjudicator decided Placefirst had to pay £867,031.36 + VAT to CAR. CAR issued part 7 proceedings to enforce the adjudicator’s decision and Placefirst issued part 8 proceedings seeking declarations, that its payment notice and pay less notice were valid.
The court had to consider two issues:
The court found in Placefirst’s favour on both points.
In respect of (1), the court held that CAR’s application for payment met the requirements of a default payment notice, even though it would not have the effect of a payment notice until Placefirst failed to give a valid payer’s payment notice.
In other words, it would not take effect as a payment notice until 6 days after the due date were Placefirst not to have given a payment notice by day five. Where the application would in time take effect as a default payment notice, a pay less notice could validly be served in response to it.
The court considered the wording of the Housing Grants, Construction and Regeneration Act 1996 only required a pay less notice to be given after the date of the notice relied on as the payment notice/default payment notice was issued, not after the date such notice took effect. At the point the notice took effect, it created a notified sum which a pay less notice had already been issued in response to.
In respect of (2), the court commented there is no difference in the substance of a payment notice and pay less notice under the Housing Grants, Construction and Regeneration Act 1996, albeit the payment notice creates a notified sum and a pay less notice confirms an intention to pay less than the notified sum.
Both notices are to state the sum considered to be due and the basis on which that sum is calculated. As such, situations can occur where a payment notice and pay less notice have precisely the same content. In those circumstances, there is no need for both a payment notice and pay less notice.
Further, for these reasons, the excel document titled 'Valuation 30' could be a payment notice in its own right as well as providing a breakdown for the pay less notice. The court further noted that Valuation 30 was:
Consequently the court held that the excel document titled 'Valuation 30' could be a payment notice in its own right as well as providing a breakdown for the pay less notice.
As Placefirst was held to have served a valid payment notice and a valid pay less notice, the disputed smash and grab was finally determined in Placefirst’s favour and the adjudicator’s decision was not enforced.
This decision reinforces the fact that the courts are reluctant to take an unduly legalistic interpretation of the requirements of the Housing Grants, Construction and Regeneration Act 1996 and prefer to adopt a pragmatic and fair approach.
The court is not willing to entertain technical arguments that are not supported by the express wording of the Housing Grants, Construction and Regeneration Act 1996. Thankfully for Placefirst, the decision has rightly confirmed that an early payment notice or pay less notice is still valid.
However, it has nonetheless been a costly exercise and the case is a reminder to ensure clarity with notices being given. Whilst a payment notice and pay less notice on the same email can be valid, best practice would still be to issue one after the other to ensure clarity and avoid costly litigation on technical arguments.
For further information, please contact the construction team.
