The Timing and Form of Payment Notices and Payless Notices

• 1 April 2025
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In the recent case of Placefirst Construction Ltd v CAR Construction the Judge found a valid payment notice had been given, despite not being explicitly named a “payment notice” and despite being provided alongside a payless notice. It also decided that a valid payless notice had been given, despite arguments that the timing of service deemed it invalid. 

On 24 July 2024, the contractor, CAR, emailed an interim payment application to the employer, Placefirst. On 31 July 2024, Placefirst emailed back with a payless notice and a valuation. CAR argued that Placefirst had failed to serve either a payment notice, or an effective payless notice, and so the amount stated in CAR’s interim payment application was therefore due.

There were two issues discussed in this case. The first was whether Placefirst’s payless notice was valid. The second was whether Placefirst had given a payment notice. The Judge made clear that Placefirst needed only one of these points to succeed, as it was only necessary for it to have served either a valid payment notice or a valid payless notice.

The Judge noted some points of law from previous case law. These were that: 

• It is essential to identify first the notice that contains the “notified sum”. It is then possible to pay less than the notified sum, subject to compliance with requirements set out in the Housing, Grants, Construction and Regeneration Act 1996 (“the Construction Act”).;
• The test for whether a notice is valid is not about how the recipient understood the notice, but instead how a reasonable recipient would have understood the notice;
• Provided that that notice makes tolerably 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; and 
• The notice does not need to say in its title what type of notice it is. 

Was Placefirst’s payless notice valid?

The first issue considered was whether Placefirst’s notice amounted to a valid payless notice. 

Under the amended form of subcontract:

• CAR was required to submit an interim payment application, which was to include a statement of the sum that CAR considered was due to it “at the date when the relevant interim payment shall be calculated”. 
• Placefirst was then to give a payment notice not later than 5 days after the payment due date. The amount specified in that payment notice would be the “notified sum”.
• If Placefirst did not serve a payment notice within the required time, the interim payment application would be regarded as a payment notice. The amount in the interim payment application would then be the “notified sum”.
• Placefirst were to pay the notified sum.

The Construction Act requires that a payless notice is not given before the notice by reference to which the notified sum is determined. 

Placefirst’s Counsel submitted that the interim payment application given by CAR amounted to a valid payment notice under the Construction Act, and would take effect on the date that it was sent. 

It was CAR’s case, however, that Placefirst’s payless notice was invalid because it was served before the date when the interim payment application came to be regarded as a payment notice.

The Judge found favour with Placefirst, stating that it was true that the interim application payment would only become a valid payment notice after the time for the payer to give a payment notice had elapsed, but that there was no compelling reason why it should have been intended that the payer should not be able to give a payless notice before that date. 

Had a valid payment notice been given?

Regarding issue two, whether a valid payment notice was given on 31 July 2024: Placefirst’s Counsel submitted that the payment notice was the worksheet behind the payment certificate. CAR’s Counsel submitted that, objectively, this could not have been intended and understood as a payment notice as, amongst other reasons, it did not describe itself as a payment notice and instead called itself a certificate. They also submitted that it did not state the sum that Placefirst considered due at the payment due date, and that the covering email said it was in “support” of the certificate. 

Placefirst argued that it intended to, and did, submit two separate documents. One was a payless notice, and one was a valuation, but either of these documents could have been the payment notice. There was no express provision in the contract that this document needed to be titled a payment notice. 

The Judge found in favour of Placefirst, stating that Placefirst had sent two separate documents, and that the valuation document was intended to be a payment notice, separate and distinct from the payless notice with which it was sent. 

Why is this case important? 

This case will be important to those in the construction industry when the timing of a payless notice is being considered. It also serves as a reminder of what will and will not constitute a payment notice, and the importance of looking beyond the title of such a document to ascertain this.