TCC decision on validity of payment and payless notices served simultaneously

In Placefirst Construction Limited v CAR Construction (North East) Limited, the Court considered whether a payless notice was invalid due to being issued before a payment due date.

Placefirst Construction Limited v CAR Construction (North East) Limited [2025] EWHC 100 (TCC)

Background

Placefirst engaged CAR as a subcontractor under an amended JCT Design and Build 2016 form of subcontract.  

In response to an interim payment application submitted by CAR (“AFP 30”), Placefirst sent in an email with a subject line that read “CAR Construction Payless Notice and Valuation 30” and enclosed two attached documents:

• The first being a PDF letter “Valuation 30 - Payless Notice” which made clear that it was issued in response to AFP 30, noted a negative amount as due and provided a summary as to how the amount had been calculated; and
• The second being an Excel spreadsheet “Valuation 30” which included, amongst other things, a worksheet headed “subcontract payment certificate” which was a more detailed breakdown of how the negative sum in the first attachment was arrived at.

CAR commenced a “smash and grab” adjudication alleging that Placefirst had failed to issue both a payment notice and an effective payless notice and were successful in being awarded the sum of £867,031.36 to CAR, that being the sum in AFP 30.  

Placefirst commenced Part 8 proceedings, seeking an expedited final determination that it had served a valid payment notice and/or an effective payless notice in compliance with the Housing Grants, Construction and Regeneration Act 1996 (as amended) ("the Act"). Three days later, CAR commenced Part 7 enforcement proceedings seeking a summary order for payment of the sum awarded to it by the Adjudicator.

Decision

The Court held that Placefirst’s claim was suitable to be dealt with by way of Part 8 proceedings and that both claims should be heard together in a single hearing.

Was Placefirst’s payless notice effective?

It was common ground that the actual form and content of the purported payless notice issued by Placefirst complied with the relevant statutory provisions, namely that it identified the sum Placefirst considered due and the basis upon which that sum was calculated.

The issue turned upon the timing of this payless notice. CAR argued that the payless notice could not be issued until the notified sum had come into being as this was not until, at the very earliest, five days after the due date (which had not occurred when Placefirst had issued the payless notice) and therefore, despite the form and content of the notice being compliant, the premature nature of the notice was fatal.

This led the Court to review what are commonly referred to as the default provisions under the Act. To recap: if the contract permits or requires the payee (CAR) to make an application for payment if the payer (Placefirst) fails to issue a payment notice then CAR’s application becomes, by default, the payment notice and, in the absence of any subsequent payless notice, CAR gets the full amount of its application - a smash and grab.

The point taken by CAR was that, because the payless notice was issued before the date when Placefirst could have issued its payment notice, the payless notice had nothing to bite on and was invalid. One cannot issue a payless notice before the sum that should otherwise be paid has crystallised was the point being made by CAR.

The Court was not persuaded by this argument, finding that, based upon some bespoke wording in the subcontract, CAR’s application for payment became the payment notice upon which Placefirst’s payless notice bit, regardless of timing.

This judgment demonstrates that tribunals tend to allow smash and grab type claims in only the most clear cut of cases. If there is some wriggle room then a tribunal may tend to dismiss such claims given the potential windfall nature of the provisions.

Buried in this case is a subtlety concerning the effectiveness of CAR’s payment application as a payment notice, which the Court spent some time considering.  This case concerned an amended JCT 2016 form of subcontract. A key amendment, the Court found, was to the standard provisions (in this case clause 4.6) relating to interim payment applications. This amendment provided for CAR to submit its application in "the sum [CAR] considers to be due to him… at the date when the relevant interim payment shall be calculated …". This was slightly different to the unamended form in the JCT subcontract which provided that a subcontractor submits in its application the "sum the sub-contractor considers will become due to him at the due date…".  

The reference to a sum becoming due at a future date, the Court said, took the unamended wording outside of the payment notices provisions under section 110A of the Act as that provided for "the sum that the payee considers to be or to have been due at the payment due date “ and not “considers to be or to have been due or that will become due at the payment due date”. Thus, the reference to “will become due” made it Act non-compliant.

Did Placefirst issue a payment notice?

The Court went on, despite its findings on the issue above, to consider whether Placefirst had in fact issued a payment notice.

CAR argued in this regard that the “subcontract payment certificate” could not be a payment notice because it:

• Did not describe itself as a payment notice nor refer to the relevant section of the Subcontract or Act under which it was issued;
• Described itself as a “subcontract payment certificate” despite there being no such term in the Subcontract; 
• Did not read as a payment notice because it did not state the sum that Placefirst considered due at the payment due date; and 
• Was not objectively intended to have an existence or function independent of the payless notice because it was described in the email as supporting the payless notice.

However, these arguments failed.

• The subcontract payment certificate in the valuation Excel spreadsheet was in form and substance what one would expect to see in a payment notice.  
• There was no requirement to describe the document as a payment notice or to refer to the term of the Subcontract under which it was sent.  
• The reference to a ‘certificate’ instead of a ‘notice’ was not consequential as both terms are used interchangeably in the industry and are in substance the same thing.  

On an objective analysis, the subcontract payment certificate was found to be a payment notice separate and distinct from the payless notice with which it was sent. There was no reason in principle why a payment notice and a payless notice could not be served at the same time.  This is what happened here.

Takeaways

Helpful takeaways arising from the decision include:

• The courts will not apply an "unduly legalistic interpretation" to payment and payless notices and will be “unimpressed by nice points of textual analysis or arguments which seek to condemn the notice on an artificial or contrived basis”.  Provided that the notice makes 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.
• Under the Act, the substance of what is required to be contained in both payment and payless notices is exactly the same (i.e. the sum the payer considers to be due and the basis upon which it is calculated).  If both include a valuation of the works at the relevant date and any deductions to be made from the valuation, they can be precisely the same in their content - meaning there is no strict requirement to serve both a payment and a payless notice (though there is a clear reason for a payer to do so if its position in respect of the amount it considers due changes following its issuing of a payment notice).  
  
  Notably, the same judge sitting in the earlier case of Lidl Great Britain Ltd v Closed Circuit Cooling Ltd (t/a 3CL) [2023] EWHC 2243 (TCC) had indicated that a notice making deductions for liquidated damages should be treated as a payless notice, not a payment notice (though the Court noted the absence of authority on the point).  This decision, reflecting the more popular interpretation on the issue, may be one which other TCC judges will find greater favour with.
• A payment and payless notice can be issued at the same time; however, one notice cannot operate as both.  In fact, the only limitation on how early a payless notice can be issued is that it cannot be issued before the interim application which it seeks to make a deduction from.
• Whilst the courts are unlikely to overturn an Adjudicator’s decision at an enforcement hearing on the basis of an incorrect decision, where a party is able to commence a timely Part 8 proceeding, there is scope for it to be decided either before or simultaneously with the enforcement hearing and, if successful, would have the effect of avoiding enforcement.
• There is doubt as to whether the standard wording of clause 4.6.2 of the JCT Design and Build 2016 (and 2024) form of subcontract (and the equivalent clauses featured in other JCT contracts) is compliant with the payment notice provisions in section 110A(3) of the Act in circumstances where it requires a subcontractor to submit an application stating the sum that it considers ‘will become due to him at the due date’. This is because, in the Court’s view, section 110A(3) of the Act cannot properly be read as including sums that would become due at a future date.  
  
  Interestingly, the Court did not raise this concern in determining whether the same payment application could be deemed to be a payee’s notice in default of a payer’s notice under section 110B(4)(a) of the Act (a mechanism which avoids the final date for payment slipping by more than one day where the payer has not issued its payment notice within the prescribed five days after the payment due date). Section 110B(4)(a) of the Act uses the wording which the Court took issue with in the context of payment notices, referring to ‘the sum that the payee considers will become due on the payment due date in respect of the payment’. The Court accepted that it would be an effective default payment notice.  Assuming that the JCT had intended the payee’s payment application to be treated as a default payment notice under section 110B(4)(a) of the Act, the impact of this point in smash and grab proceedings may be limited but there could be some uncertainty until this issue again comes before the Courts.  

You can read the full decision here.