06-03-2025
Key Insights from Placefirst Construction Ltd v Car Construction (North East) Ltd
The case of Placefirst Construction Ltd v Car Construction (North East) Ltd [2025] EWHC100 (TCC) has shed light on the crucial issue of payment and payless notices in construction contracts, and how disputes over these notices can impact enforcement proceedings. The case offers insight into how the court’s approach the balance between adhering to the "pay now, argue later" principle and recognising the substantive legal rights of the parties involved.
Background
The dispute arose from a construction project in Durham, where Placefirst Construction Ltd ("Placefirst") acted as the main contractor and Car Construction (North East) Ltd ("CAR") was the subcontractor. The contract between the two parties was based on an amended JCTDesign and Build 2016 subcontract.
The issue began when CAR submitted an interim payment application on 24 July 2024. In response, Placefirst sent an email on 31 July 2024 including two attachments: a pay less notice and an MS Excel spreadsheet titled “Valuation 30.” The email described these documents as "Payless Notice and Valuation 30 to support".
CAR contended that the email and accompanying documents did not constitute a valid payment notice, as the material was clearly a payless notice rather than a payment notice. Additionally, CAR claimed that the payless notice was invalid because it was issued prematurely i.e., prior to receipt of a valid payment notice or before the date that CAR’spayment application became the default payment notice in lieu of a valid payment notice.
Placefirst argued that the submission of 31 July 2024 provided both a valid payment noticeand a valid payless notice, with the spreadsheet serving as a distinct and effective payment notice. This disagreement led CAR to initiate a "smash and grab" adjudication, which resulted in a ruling in favour of CAR, with an award of £867,031.36 plus VAT.
Placefirst then issued Part 8 proceedings seeking declarations that the “Valuation 30” document constituted a valid payment notice and that the payless notice of the same date was effective. Three days later, CAR sought to enforce the adjudicator’s decision.
The Court’s Approach
In construction adjudications, the principle of "pay now, argue later" typically requires that parties comply with an adjudicator's decision immediately, even if the underlying dispute has not been fully resolved. However, the court in this case decided to hear Placefirst's Part 8 claim alongside CAR’s enforcement action, with the judge indicating that enforcing the adjudicator's decision would be unconscionable if Placefirst was correct in its interpretation of the notices.
The Validity of the Payless Notice
A key issue in the case was whether Placefirst’s payless notice had been issued prematurely.
The relevant law includes:
- Section 111 of the Housing Grants, Construction and Regeneration Act 1996 (as amended) (“the Act”) – which specifies the requirement to pay the notified sum.
- Section 111(2) of the Act – which sets out the definition of what constitutes the notified sum. This being either a payment notice given by the payer in compliance with Act section 110A(2) [Subsection (2)(a) refers], or if the contract requires it, a notice given by the payee complying with Act section 110A(3) [Subsection (2)(b) or (c) refer].
- Section 111(3) of the Act – which provides the right for the payer to issue a payless notice, if intending to pay less than the notified sum.
- Section 111(5) of the Act – which confirms that in a case referred to in subsection 111(2)(b) or (c), the payless notice may not be given before the notice by reference to which the notified sum is determined.
The court reviewed the contractual wording and the context of the subcontract and concluded that under amended clause 4.6 of the JCT conditions, CAR was required to submit an interim payment application, which included a statement of the sum owed, the date when the interim payment was to be calculated, and the basis on which it was to be calculated. This amended wording differed from the ordinary wording of the JCT Design and Build subcontract, and therefore CAR’s application for payment was not merely a payment claim but also a notice required under the subcontract in compliance with section 110A(3).
As a result, Placefirst’s payless notice having been served after the date of CAR’s notice, was not served “before the notice by reference to which the notified sum is determined”, was not issued prematurely, and was a valid payless notice.
The Payment Notice Issue
While the payless notice was deemed valid, the court also examined whether the "Valuation 30" spreadsheet, sent with the payless notice, qualified as a separate and valid payment notice. CAR argued that the spreadsheet was part of the same communication as the payless notice and could not be considered a distinct payment notice.
However, the court disagreed with this view. It found that the content of the "Valuation 30" spreadsheet met the necessary legal criteria for a payment notice. The workbook, labelled as a "subcontract payment certificate," was in substance a payment notice as required under the Act. The judge noted that the spreadsheet was not simply an ancillary document to the payless notice but was intended to serve a separate purpose as a payment notice.
The court also considered that there was nothing prevent Placefirst from serving both a payment notice and a payless notice simultaneously.
The Court’s Final Decision: No Enforcement of the Adjudicator’s Award
Ultimately, the court decided not to enforce the adjudicator’s decision. This decision was significant because it diverged from the usual expectation that adjudication awards should be enforced immediately, regardless of any underlying issues with the substantive dispute. The court’s approach emphasised that, where the dispute revolves around a straightforward legal interpretation of notices, and the necessary factual evidence is clear, there is no reason why enforcement should not be challenged.
Key Takeaways
This case highlights the importance of ensuring that all payment and payless notices comply strictly with both statutory and contractual requirements. In construction contracts, where disputes often arise over technicalities in the notices, parties must be diligent in adhering to the prescribed procedures to avoid costly adjudications and potential litigation.
The judgment also reinforces the court’s approach to focusing on the substance of a notice rather than its title. In disputes over payment notices, the court will examine the content of the communication and its compliance with the legal requirements, rather than dismissing a notice solely because it was not titled as a "payment notice."
Finally, while the "pay now, argue later" rule remains a cornerstone of adjudication enforcement, this case serves as a reminder that, in certain situations, the court may elect to allow a Part 8 matter to be resolved concurrently with enforcement proceedings.
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