PAYMENT NOTICES AND THE HIGH COURT: PLACEFIRST CONSTRUCTION V CAR CONSTRUCTION

Introduction

Earlier this month, the Manchester High Court made a ruling in Placefirst Construction Ltd v Car Construction (North East) Ltd [2025] EWHC 100 (TCC), addressing the validity of a payment notice and a payless notice in a construction dispute. The decision examines common statutory and contractual provisions and will interest parties to construction contracts and their professional advisers.

Background

The dispute concerned a construction project in Durham where Placefirst, who specialise in build-to-rent properties, was the main contractor on a project to build rental properties on Ridding Road, Esh Winning in Durham. CAR, who specialise in the construction of domestic buildings, was the subcontractor under an amended JCT design and build 2016 form of subcontract.

Under a previous ‘smash and grab’ adjudication decision made on 18 October 2024, the adjudicator had found in favour of CAR, finding that:

• Placefirst had failed to serve a valid payment notice; and
• The payless notice issued by Placefirst, together with a valuation in response to an interim payment application made under the subcontract by CAR, was premature (since it was served prior to the date when it could validly have been served under statute and/or the subcontract) and therefore ineffective.

Placefirst started Part 8 proceedings on 5 November 2024, seeking an expedited final determination as a defence to any enforcement of the adjudicator’s decision.

In tandem with these proceedings, CAR issued a Part 7 application for summary judgment on 8 November 2024 in a bid to enforce the adjudicator’s decision for the payment of just under £870,000. Due to circumstances pertaining to the Court’s availability, it was decided that the two proceedings were to be heard together on 20 December 2024.

The basis for the adjudication arose in circumstances where CAR emailed its interim payment application for 31 July 2024 to Placefirst on 24 July 2024. Placefirst subsequently sent an email to CAR on 31 July 2024 with the following subject line: ‘CAR Construction Payless Notice and Valuation 30’, with the following attachments: ‘Valuation 30 – Payless Notice.pdf’ and an Excel workbook entitled ‘Valuation 3O.xlsm’. The documents issued showed a minus figure was due to CAR.  Placefirst submitted that the communication sent to CAR was a valid payless notice on the one hand, and a valid payment notice on the other under Part II of the Housing Grants, Construction and Regeneration Act 1996 (as amended) (the ‘Act’).

In response, CAR argued that the correspondence received on 31 July 2024 constituted a payless notice only. CAR asserted that as the payless notice was issued prior to its interim payment application on 24 July 2024, becoming the effective payment notice, it was in any event invalid.

Key questions for the High Court

As such, the first overarching question for the High Court was whether Placefirst had served a valid payment notice under Part II of the Act, requiring the application of established principles to the facts in this matter. The second concerned whether the payless notice served by Placefirst was valid, considering that it had been served ahead of when it ordinarily would under the Act and/or the subcontract. The court determined that Placefirst would only need to “succeed on one of these points”[1], citing common ground that Placefirst would not have been required to serve both a valid payment notice and a valid payless notice.

Decision

Overturning the earlier adjudicator’s ruling which had favoured CAR’s position, the Judge ruled that the payless notice served by Placefirst was valid. In addition, the court also found that the payment notice had been validly served as part of the same communication. As such, this decision prevented the enforcement of the adjudicator’s award against Placefirst. Under Section 111(1) of the Act 1996 a party must pay the notified sum provided by a construction contract on or before the final date for payment. The notified sum may be identified in a payment notice (Section 110A), payless notice issued by the payer (Section 111(3)) or a default payment notice (i.e. based on the payee’s payment application – Section 110B).

In reaching the conclusion as to whether the ‘Valuation 3O.xlsm’ worksheet which had been attached constituted a valid payment notice, the court considered the statutory position and various case law authorities and concluded, amongst other things, the following:

• That the “construction of the notices must be approached objectively.” The issue being how a “reasonable recipient would have understood the notice”, with the purpose of the notice becoming relevant to its “construction and validity” [para 47. i, ii, and iii].
• That courts will be “unimpressed by nice points of textual analysis or arguments which seek to condemn the notice on an artificial or contrived basis” [para 47. iv.].
• That for any payment notice to qualify as valid, it must comply with the statutory and contractual requirements in “substance and form” [para 47. vi]. As such, payment notices and payless notices must “clearly set out the sum which is due and/or to be deducted and the basis on which the sum is calculated”, beyond which the question of whether a notice is valid is “a question of fact and degree”. Consideration will therefore be made as to whether a notice was in fact intended to be such, “free from ambiguity”. In this context, while payment notices should be clearly and easily identifiable, “there is no requirement for a particular type of notice” to carry that specific title or to make “specific reference to the contractual clause” [para 47. vii and viii].

It is on this basis that the court found in favour of Placefirst, agreeing with the submission that as worksheet ‘Valuation 3O.xlcm’ was intended to have a separate contractual status from the payless notice, it did qualify to operate as a payment notice despite having been identified as a ‘subcontract payment certificate’ on the face of it. It was therefore held to have been intended to have formal effect under the contract and not to be “purely subsidiary” to the attached ‘Valuation 30 – Payless Notice.pdf’.

As to whether the payless notice was valid, it was held that under Part II of the Act an interim payment application “will only become a payment notice after the time for the payer to give a payment notice has elapsed”[2] (i.e. five days after the due date). However, the Judge, in considering the relevant amended wording under clause 4.6 of the subcontract, concluded that CAR’s interim payment notice, in this case, served as a payment notice. The wording agreed by the parties differed subtly to the standard form of wording (see ‘Commentary’ below). This reading meant that Placefirst had not issued a payless notice before a notice setting out the notified sum.

The Judge further stated that there was no compelling or logical reason why a payer should not be permitted to give a payless notice before a payment notice has elapsed in a scenario where an interim payment notice has been served, concluding that Placefirst’s payment notice was valid. Section 111(5)(b) of the Act acts as a potential restriction on issuing a payless notice too early however, since this provides that it cannot be issued prior to the payment application.

Through a proper reading of the amended Act and the subcontract relevant to this matter, the Judge further confirmed that there is “no difference of substance” between the content of a payless notice or a payment notice, and as such it is for the payer to decide whether or not to serve both (especially if they contain the same information). Albeit, based on extra-judicial observation, it is maintained that one notice cannot operate as both.

As a short final point of importance for those serving notices, the court found no reason in principle as to why payment notices and payless notices could not be served simultaneously under cover of the same letter, email, or communication.

Commentary

‘Smash and grab’ adjudications are common in the construction industry and often provide a quick and efficient means by which parties can resolve issues concerning payment notices or payless notices and maintain cashflow on projects, with no need to incur the potentially significant costs of litigation. Indeed, the Act was founded on the principle of ‘pay now, argue later’ for payment disputes. However, the recent case under review underscores the limitations of this approach, particularly when disputes hinge on intricate legal questions that are more appropriately resolved within the courtroom.

The recent decision provides valuable insights into the interpretation of payment and payless notices under contract and statute, which will no doubt interest construction professionals and parties to construction contracts. One of the key takeaways is the confirmation that these notices can be served simultaneously. This clarification aligns with the underlying purpose of and amendments to the Act and its subsequent payment structure, which aims to facilitate the smooth administration of payments and cashflow within the industry.

It is further clear from the judgment that the payment notices and payless notices can be served following an application for payment, whether or not that payment application (in this case an interim payment application) becomes the default payment notice. This effectively would allow for the ‘early’ service of a notice, provided that contractual agreements do not specify otherwise.

It is fortuitous that worksheet ‘Valuation 3O.xlcm’ described itself as a ‘payment certificate’, as Placefirst was able to reference existing authority ostensibly equating payment notices with certificates, citing the linear historical connection between the two. One wonders to what extent, on balance, this connection was a necessary component to identifying the payment notice as such in this case. In any event, it is an important reminder that all notices issued should comply with procedural statutory and contractual requirements to avoid any unnecessary issues, ensuring they are plainly identified and clear in terms of content and remain free from ambiguity. Such notices, communications, and documents provided as a substantiation to payment applications, payment notices or payless notices should be served in accordance with the contract and copies retained on file in case of future dispute.

According to the judgment, Clause 4.6.2 of the standard form of JCT design and build subcontract 2016 (unamended) does not comply with Section 110A(3)(a) of the Act since it references the payment application setting out the sum that the subcontractor “considers will become due… at the due date” (emphasis added – i.e. this relates to a future date)[3]. It is notable that the 2024 Edition of this contract also contains the same wording. Therefore, it is recommended that you check the agreed payment provisions in your contract before seeking to rely upon this recent decision as authority. For example, in this case the parties had amended clause 4.6.2 to provide that interim applications for payment should include “… a statement of the sum that [CAR] considers to be due… at the date when the relevant interim payment shall be calculated and the basis on which that sum is calculated” (emphasis added).

The matter also addressed and confirmed that payment notices could still be considered valid where they state a zero or a negative sum due, as the court found no express prohibition in the Act or the contract to the contrary, providing further clarity for those drafting payment and/or payless notices. Nonetheless we sometimes see contracts expressly providing for this ability as part of the agreed payment terms.

Should you have any questions on the content of this case summary or require support in applying the core principles to your contracts or disputes, please contact James Vernon or your Beale & Co contact. For more information on other case reports or legal developments, please sign up to our mailing list.

[1] Placefirst Construction Ltd v Car Construction (North East) Ltd [2025] EWHC 100 (TCC), paragraph 13

[2] Judgment, paragraph 61.

[3] Judgment, paragraph 52.