Payment notices are red, payless notices are blue… but it’s the substance within that’s true!

According to King’s College London’s third construction adjudication report published in November 2024, the Technology and Construction Court (TCC) fully enforced approximately 77% of the adjudications since October 2011.  Interestingly, in its first published judgment of 2025 on adjudication enforcement, the TCC declined to enforce an adjudicator’s decision because it was held to be incorrect based on the submissions during the adjudication proceedings.

In Placefirst Construction v CAR Construction [2025] EWHC 100 (TCC), the adjudicator in a ‘smash and grab’ adjudication decided that Placefirst (main contractor) owed CAR (subcontractor) £867,031.36 plus VAT due to Placefirst's failure to serve a valid payless notice (PLN) or an effective payment notice (PN) under the subcontract.  However, the TCC declined to enforce the decision.

The case concerned a construction project in Durham, in which dispute arose in July 2024 when CAR, as the subcontractor, submitted its interim payment application (IPA) for that month.  Placefirst, as the contractor, served a PLN in response to the IPA in a week’s time.  As will be explained, this led to a disagreement over the validity of the PLN and PN, resulting in CAR initiating the adjudication and the subsequent enforcement proceedings in which Placefirst resisted. 

‘Smash and grab’ adjudications

For those who are less familiar with UK adjudications, ‘smash and grab' adjudications occur when one party (the payee) enforces payment simply based on the other party (the payer)'s failure to comply with payment provisions within the stipulated timeframe, as required by the construction contract itself or the Housing Grants, Construction and Regeneration Act 1996 (Construction Act).  If the contractual or statutory payment requirements are not met, it triggers automatic payment obligations from the payer, even if the payee’s payment application asks for a ‘wrong’ value.  The payer must pay the ‘wrong’ amount first and then challenge it through a ‘true value’ adjudication, embodying the ‘pay now, argue later’ principle to maintain cashflow for (sub)contractors.

This sort of adjudication is therefore known as ‘smash and grab’, since it purely leverages on the strict procedural requirements and the automatic payment obligations under the Construction Act. 

Payment provisions – key terms

Typical UK construction contracts include detailed interim payment provisions consistent with the Construction Act.  In JCT Design and Build 2016 contracts (JCT D&B 2016), upon receiving an interim payment application (IPA) from the payee, the payer must first issue a PN specifying the amount due and its calculation basis. If the payer disputes the IPA amount, a PLN must follow, detailing the reduced amount and reasons for the deduction. The ‘notified sum’ (NS) in the Construction Act refers to the amount a payer must pay as specified in a payment notice.  If no PN is issued, the NS is determined by the amount in a ‘default payment notice’ (DPN) issued by the payee.

In Placefirst v CAR, the subcontract payment cycle largely follows JCT D&B 2016:

1. CAR, as payee, is required to submit an IPA by the 25^th of each month.  The interim valuation date is set to be the last calendar day of each month.
2. Placefirst then has 16 days after the interim valuation date to pay the interim payment sought, with the final payment date being 12 days after the due date (i.e. by Day 28).
3. Placefirst is also required to issue a PN within five days after the due date (i.e. by Day 21).  If no PN was issued, the IPA would be used to determine the NS.  Accordingly, Placefirst had to pay the NS (either stated in the PN or the IPA) by Day 28, unless a PLN was issued two days before the final payment date (i.e. by Day 26).

Placefirst v CAR explained

On 24 July 2024, CAR submitted its IPA for the month ended 31 July 2024 (CAR’s IPA).  On 31 July 2024, Placefirst responded with an email titled “CAR Construction Payless Notice and Valuation 30".  The attachments to the email included:

1. a PDF “Valuation 30 - Payless Notice.pdf" (Placefirst’s PLN); and
2. an Excel "Valuation 3O.xlsm" with different tabs, including a “payment certificate” (Excel).  It explains detailed breakdown of how Placefirst came to the net amount due, although it was said in the cover email that this Excel was sent ‘to support'.

CAR took the above to a ‘smash and grab’ adjudication and won.  The adjudicator decided that the Excel was not intended to serve as a PN, and did not comply with the necessary requirements under the subcontract and/or the Construction Act.  This follows that Placefirst’s PLN would be invalid/premature because technically, no PN before it was served.

CAR sought to enforce the adjudication decision, but Placefirst resisted.  These actions boiled down to two issues before the TCC: (1) the validity of Placefirst's PLN, and (2) whether the Excel, in substance, constituted a PN.

On the first issue, Placefirst argued that the IPA itself should be the DPN, but deemed to be issued on the date it was issued (i.e. 24 July 2024) if no PN was given by the payer.  This interpretation would allow the earliest date of Placefirst’s PLN to be issued on the same date as the IPA, so Placefirst’s PLN served on 31 July 2024 would not be premature.  Conversely, CAR contended that the IPA becomes DPN only after the date on which the PN was required to be given by the payer (i.e. Day 21), rendering the Placefirst’s PLN premature and invalid.

The court concluded that there was no provision in the Construction Act stipulating that an IPA is deemed a DPN only after the period for the payer to give a PN had elapsed.  Instead, the court held that where no valid PN is served, the IPA is to be regarded as the DPN, and a PLN can be issued any time after the IPA, but not before.  Therefore, Placefirst’s PLN is valid and effective.

On the second issue, Placefirst contended that the Excel was intended as a separate document and not merely a document ‘to support’ its PLN.  CAR argued that the Excel was purely subsidiary to Placefirst’s PLN and did not meet the necessary requirements to be considered a valid PN.

The court adopted a ‘substance over formality’ approach and concluded that the Excel does constitute a valid PN.  The court noted that there was no requirement for the document to refer to itself explicitly as a ‘payment notice’; it does not matter if a valid PN was described as a ‘payment certificate’.

Commentary

This case underscores the court’s ‘substance over form’ and common-sense approach, rather than an ‘unduly legalistic’ one, in interpreting payment provisions in construction contracts and/or the default scheme in the Construction Act.  While 'smash and grab' adjudications and the 'pay now, argue later' principle remain prevalent, this case serves as a reminder that the court will sensibly interpret payment provisions and may decline enforcement of decisions that do not align with common sense.

The court's willingness to adopt a practical approach is reassuring, but at the first place it is crucial for parties to adhere strictly to the terms of their construction contracts.  Ensuring that all notices are correctly issued and clearly identified can prevent disputes and the need for judicial intervention.  By investing some time and costs in doing so, parties can avoid the (usually heavier) costs associated with legal actions such as adjudications and/or enforcement actions.

This article was first published in The Construction Index on 14 February 2025.