Mark Christie is a partner at Clarke Willmott
A recent case this year 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.
“The judge accepted that the argument was ‘ingenius’ but rejected it”
In Placefirst Construction Ltd v CAR Construction, 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 “ingenius” 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?
Important reminder
The underlying context to all of this, of course, is the draconian effect 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 that 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 cashflow 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.
