Payment notices and adjudication - a new way to pay less and/or challenge an adjudicator's decision?

Placefirst Construction Ltd v Car Construction (North East) Ltd [2025] EWHC 100 (TCC) (24 January 2025)

In the recent case of Placefirst Construction Ltd v Car Construction (North East) Ltd [2025] EWHC 100 (TCC) (24 January 2025)[1] the court was asked to enforce an adjudicator’s decision (made on a smash and grab basis) and at the same time, make a final decision, in part 8 proceedings, on the substantive dispute. The substantive dispute was regarding the validity or otherwise of the claimant’s payment and payless notices. Here the court decided the adjudicators decision was wrong (although emphasised that the case before the court was “not necessarily the same” as the case before the adjudicator) and did not enforce the adjudication award. This may seem an unusual result in the context of the court’s usual position of "pay now and argue later", yet this remains consistent with the court's general principles and previous authorities.

Background

Placefirst Construction Ltd (Placefirst) was the main contractor who engaged Car Construction (North East) Ltd (CAR) as a sub-contractor on a construction project at Ridding Road, Esh Winning, Durham.

The parties entered into a subcontract on 26 October 2022 under a JCT design and build 2016 form of subcontract as modified by a schedule of amendments (the Subcontract). Whilst the Subcontract terms were amended, they substantially followed the payment provisions found within the Housing Grants, Construction and Regeneration Act 1996 (as amended) (the Act).

CAR submitted its interim payment application via email on 24 July 2024. Placefirst responded on 31 July 2024 via email with the subject: “CAR Construction Payless Notice and Valuation 30”. This email was accompanied with attachments titled "Valuation 30 - Payless Notice.pdf" and "Valuation 3O.xlsm". These provided a breakdown and summary of the sum considered due by Placefirst (minus £22,000). Notably, one of the tabs within the spreadsheet was titled “payment certificate”. 

The adjudication

CAR argued the email sent by Placefirst was a) not a payment notice, as it was not titled as such, and/or b) not an effective payless notice as it was sent "too early", i.e. prior to receipt of a valid payment notice by Placefirst and/or before CAR’s payment application became the default payment notice. Therefore, CAR was entitled to be paid the full value of its payment application. CAR commenced adjudication to decide the dispute. The adjudicator agreed with CAR and awarded CAR £867,031.36 plus VAT.

Enforcement and Part 8 proceedings

Following the adjudicator’s decision CAR sought to enforce the award and issued Part 7 enforcement proceedings on 8 November 2024. However, three days earlier, Placefirst had issued a Part 8 claim seeking determination on the validity of notices arguing that it had served a valid payment notice and/or an effective payless notice, so that it would be unconscionable to enforce the decision. No other defences to CAR's enforcement claim were raised.

CAR objected to the Part 8 claim being determined by the court in advance of or at the same time as enforcement of the adjudication award on the basis that it was wrong in principle not to enforce the adjudicator's decision by reason of the outstanding Part 8 claim, and on the further basis that the Part 8 claim required the determination of potentially disputed factual evidence.

During a case management hearing on 13 December, it was decided the Part 8 claim could be determined alongside the Part 7 enforcement proceedings without delaying the resolution of the enforcement proceedings as there was no reason in principle why it should not do so.[2] The judge went on to say it would be “unconscionable to enforce the adjudicator's decision” if Placefirst was correct in its analysis of the notices.[3]

The decision

The two issues to be decided were:[4]

• Was Placefirst’s payless notice invalid because it was served earlier than when required under the Act and the Subcontract?
• Did Placefirst serve a payment notice in accordance with the Act and the Subcontract?

The payless notice:

The judgment focused on the validity of the payless notice first because if the payless notice was valid, then there was no need for the email to also have constituted a valid payment notice. CAR's case was that Placefirst's payless notice was invalid because it was served before the date when it could validly have been served under the Act and/or the Subcontract. Sections111(2)(b) and (c) of the Act set out that the payless notice may not be given before the payment notice by reference to which the notified sum is determined. Furthermore, the Subcontract specified that “it may not be given before the notice by reference to which the notified sum is determined".[5]

The court found that Placefirst's payless notice was valid because it was not, in fact, served prematurely. This was due to the amendment of Subcontract clause 4.6 which required CAR to submit an interim payment application which included "a statement of the sum that [CAR] considers to be due to him … at the date when the relevant interim payment shall be calculated and the basis on which that sum is calculated".[6] This wording was different from the ordinary unamended standard JCT form and brought CAR’s application for payment into compliance with the Act. This finding resulted in Placefirst’s payless notice being valid as it was issued after the payment application, now payment notice (sent by CAR).

The payment notice:

The court’s decision on the payless notice was sufficient to determine the dispute in Placefirst’s favour. However, the court also went on to consider whether the workbook attached to the same email as the payless notice would itself have amounted to a valid payment notice for the purposes of the Sub-contract and the Act. CAR argued that Placefirst's email on 31 July 2024 was clearly a payless notice rather than a payment notice and was therefore invalid as a payment notice. Placefirst contended that its worksheet attachment, "Valuation 3O.xlsm," was intended to have a contractual status separate and distinct from the payless notice, and should thus be considered a valid payment notice.

The judge agreed with Placefirst, finding that the content and context of the communication met the requirements for a payment notice under the Act. This interpretation was based on the understanding that both a payment notice, and a payless notice serve the same purpose: to state the sum that the payer or payee considers to be due and the basis on which that sum is calculated. Although both were sent by the same email, there were two distinct notices within the email and the worksheet attachment was a valid payment notice in its own right.

Accordingly, the adjudicator’s decision was not enforced.

Key takeaways

While the court’s decision not to enforce an adjudicator’s award for reasons of a "wrong" decision by the adjudicator on the substantive dispute is unusual, this case highlights that enforcement may be successfully challenged by way of parallel Part 8 proceedings where the substantive dispute is of a "short, crisp point, requiring little, if any factual evidence beyond the relevant terms of the contract and the notices in question" and can be heard at the same time and with no delay to resolution of the enforcement proceedings. While at first glance this may seem contrary to the "pay now, argue later" rule often quoted by the courts in enforcement proceedings, the particular facts of this case (including the narrow remit of the substantive dispute), the fact that Part 8 proceedings had already been issued prior to enforcement, and the ability of the court to decide the substantive dispute (without any delay to the enforcement proceedings), do still align with the court’s general principles in this regard and previous authorities.

This judgment also highlights the ongoing importance of adhering to statutory and contractual requirements for payment and payless notices in construction contracts, to ensure that parties avoid being embroiled in costly adjudication and/or litigation to dispute what are effectively administrative matters.

This case has confirmed the court’s approach to looking at the content of a notice as opposed to its title to assess validity, and also that enforcement will not be delayed due to a dispute on the substantive point.