Courts provide some clarity on pay less notices
A recent case in the Technology and Construction Court has shed some very welcome light on a fairly obscure part of the Construction Act relating to the correct timing for issuing Pay Less Notices.
In Placefirst Construction Ltd v CAR Construction [2025] EWHC 100 (TCC) His Honour Judge Stephen Davies was dealing with a Part 8 claim acting as a defence to the enforcement of a “smash and grab” adjudicator’s decision.
The dispute itself concerned a notified sum claim relating to an interim application for payment made by the subcontractor (CAR) to the main contractor (Placefirst).
Placefirst had responded to the application for payment by issuing an email enclosing two attachments – a “valuation” and a pay less notice.
CAR was successful in the adjudication – arguing that the Pay Less Notice had been issued too early and relying upon Section 111 (2) (b) and (c) – which states that a Pay Less Notice is not valid if it is served “before the notice by reference to which the notified sum is determined.”
CAR’s argument was that the provisions of the Construction Act meant that a Pay Less Notice could not be served before the Application for Payment became the notified sum – which they argued would not have happened technically until after the last date that Placefirst could issue a Payment Notice itself (ie five days after the due date).
The Judge accepted that this argument was “in genius” but rejected it. In his view, the Construction Act did not go as far as saying that an interim application for payment issued on X date is later transmuted into a payee payment notice given on Y date.
I’d respectfully suggest that Placefirst was clearly correct in its interpretation of the Act and its reasoning.
There can be no real logical reason why a Pay Less Notice should not be issued after receipt of a valid application for payment. The whole purpose of the Construction Act is that it should provide a clear and workable mechanism for payments to be certified. Provided that a Pay Less Notice is a considered response to the Application for Payment it should be deemed to be valid.
If a Pay Less Notice is issued “earlier” in the payment mechanism, then surely that is in line with the underlying ethos to ensure that payments are considered and processed in the construction industry quickly?
The underlying context to all of this of course is the “draconian” effects of the notified sum regime – whereby parties can be forced to pay the full amount applied for without interrogation if they don’t issue timely and valid notices in response to an application for payment.
The decision in Placefirst is therefore a welcome reminder that the Courts will not take an unduly restrictive view on notices or try to condemn them on artificial or technical legal grounds.
Provided that somebody has intended to issue a notice and that notice makes tolerably clear what they are proposing to pay and why (and it has not been issued too late), the notice should normally be considered valid.
More generally, the case is an important reminder to all parties operating in the construction industry to fully understand the requirements and deadlines for getting their applications and payment notices in.
Approximately 15 years after the “notified sum” was first introduced, a good proportion of the disputes which cross our desks relate to arguments between parties under the “notified sum regime”. Parties owed money will inevitably use the measures for commercial leverage and paying parties will often find themselves in hot water (and cash flow problems) if they don’t get their payment notices served validly and on time.
While the Placefirst case will be welcome news to paying parties in removing another potential technical tripwire, the Courts have made it crystal clear over the years that the notified sum regime generally will be supported and enforced vigorously.
Speak to an expert
Mark Christie is a partner in the construction team at Clarke Willmott specialising in construction disputes and contract procurement. Mark has a particular interest in Adjudication, Part 8 claims/ Enforcement and payment claims under the Construction Act. For more information on this topic send an enquiry or call 0800 652 8025.
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