A judge has overturned an adjudicator’s decision that a subcontractor was owed £1m due to an invalid pay less notice.
In October 2024, adjudicator Neil Boothroyd found Placefirst Construction should pay CAR Construction (NE) £867,031 plus VAT – a total of £1m – following a dispute at a large residential scheme.
CAR worked for Placefirst on its project at Ridding Road, Esh Winning in Durham from October 2022 under a JCT design and build 2016 contract. It was due to end in August 2024.
On 24 July 2024, CAR emailed its interim payment application for the month to Placefirst.
A week later, Placefirst responded with an email with the subject line “CAR Construction Payless Notice and Valuation 30”, and two attachments outlining deductions.
These outlined that Placefirst believed it was owed £22,812 by CAR on top of the amount it had deducted from the monthly payment, due to delays on the job.
CAR argued that the pay less notice was invalid because Placefirst had sent it earlier than five days after the payment due date.
It argued that the Housing Grants, Construction and Regeneration Act 1996 means that a “deemed” notice can only take effect as a valid pay less notice once this date has passed and the payer fails to issue a valid payment notice.
In a judgement issued on Friday (27 January) at the Technology and Construction Court, Judge Stephen Davies called the argument “ingenious” but wrong.
He said there was “no compelling reason” why the act would be designed to stop a notice being given before the payment due date.
“The payer may be perfectly happy with the interim payment application as such, but may also wish to make a specific deduction from the valuation in his pay less notice. Why should the payer not be perfectly free to do so at any time after receiving a valid interim payment application?
“The reason why a pay less notice should not be given before the interim payment application is given is fairly obvious, because otherwise there would be no known sum from which a deduction could be made.
“By contrast, there is no logical reason why a pay less notice should not be given before the time for giving a payment notice has elapsed,” he said.
The decision to serve a payment notice and a pay less notice together or just one or the other is entirely up to the payer, Davies added.
Given the legislation around adjudication was designed to speed up payments, he said, it would be “odd” if payers had to wait until an interim payment application became a payee notice as this would potentially stop the payee from being paid early.
Davies also ruled that Placefirst’s 31 July communication fulfilled the statutory criteria for a valid payment notice, “separate and distinct from the pay less notice with which it was sent”.
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Ian Weinfass