As Adele Parsons explains, the judgment in Placefirst Construction Ltd v CAR Construction (North East) Ltd [2025] EWHC 100 (TCC), offers valuable guidance on the interpretation and timing of payment and pay less notices under the Housing Grants, Construction and Regeneration Act 1996 (the “Construction Act”), while serving as a reminder that the simplest of steps when administering contracts can prevent costly smash-and-grab adjudications.

One email, two notices

A payment dispute arose between Placefirst, the main contractor for a project to build rental properties in Durham, and its subcontractor, CAR, which was appointed under an amended form of the JCT Design and Build 2016 form of subcontract.

In summary, the subcontract payment mechanism required that:

• CAR issue an interim payment application no later than the 25^th day of each month;
• The due date for payment be 16 days after the interim valuation date;
• Placefirst issue a payment notice five days after the due date stating the sum due and basis for its calculation, or CAR’s application would become a payment notice in default; and
• Placefirst pay the amount specified in the payment notice (or “notified sum”) by the final date for payment unless Placefirst had issued a pay less notice, which was to be issued no later than two days before the final date for payment.

On 24 July 2024, CAR submitted its interim payment application 30 to Placefirst in the sum of circa £867,000 plus VAT.

In response, Placefirst sent an email to CAR on 31 July 2024 with the subject line “CAR Construction Pay Less Notice and Valuation 30” [emphasis added]. The email advised:

“Please find the attached Pay Less Notice and Valuation 30 to support, in relation to your AFP 30 received on 24th July 2024. In consideration of the delays to the sub-contract works there is a balance due in the sum of (£22,812.15).”

Attached to the email was: (i) an Excel workbook entitled “Valuation 30.xlsm” (“Valuation 30”), which contained several tabs, including one titled “subcontract payment certificate”; and (ii) a PDF entitled “Valuation 30 – Pay Less Notice” that referred to Valuation 30 which was said to be enclosed for CAR’s information.

Smash and grab adjudication

The disparity in the parties’ valuations led to an adjudication in which CAR argued, and the adjudicator agreed, that:

• Valuation 30 was not a valid payment notice but only supporting information for Placefirst’s pay less notice;
• The pay less notice was nonetheless ineffective as it had been served prematurely – being issued before the date on which it could be validly served under either the Construction Act or the subcontract; and
• CAR was entitled to be paid the sum claimed in its application for payment.

The court proceedings

Placefirst refused to pay the sum determined by the adjudicator and instead commenced Part 8 proceedings seeking a final determination as to the validity of the payment and pay less notices in anticipation of CAR issuing enforcement proceedings, which it did only three days later. The court heard both proceedings together, having sufficient availability to do so.

The key questions for the court were:

• Whether Placefirst’s Valuation 30 was a valid payment notice under the Construction Act; and
• Whether the pay less notice was valid given it had been served in advance of when one would normally expect it to be served under the Construction Act or the subcontract (it being served in response to the interim payment application and at the same time as Valuation 30 (or what Placefirst considered to be its payment notice)).

Validity of the payment notice: substance over style

The court found that Valuation 30 was a valid payment notice by reason of the following:

• Notices were to be interpreted objectively. The question was not how the recipient of a notice understood the notice but how a reasonable recipient would have understood the notice, considering the “relevant objective contextual scene”.
• This was not a case of being unduly legalistic. The court was clear that it would be “unimpressed by nice points of textual analysis or arguments which seek to condemn the notice on an artificial or contrived basis”.
• Rather, it was a case of taking a practical, common-sense view of the notice to determine whether it complied with the relevant statutory and contractual requirements in “substance and form”, such that it set out the sum that was due and the basis on which that sum was calculated. Beyond this, a notice’s validity was a “question of fact and degree”.
• There was certainly no requirement (as CAR argued) that the notice must be labelled as a payment notice to be valid or refer to a specific contractual clause. For example, the court was unimpressed with CAR’s argument that Valuation 30 was not a valid payment notice because it was labelled as a “subcontract payment certificate”.

Timing of the pay less notice

CAR relied on section 111(5)(b) of the Construction Act to argue the pay less notice was invalid, as it had been issued before “the notice by reference to which the notified sum is determined”, which would typically be a valid payment notice or, in lieu of that notice, an application which had become a payment notice in default – which CAR claimed was not the case here.

The court, however, on considering the amended wording of the subcontract against the Construction Act, found that CAR’s interim application served as a payment notice by which the notified sum was determined as:

• Section 110A(3) of the Construction Act requires that the notice must state the sum the payee considers “is or to have been due” at the due date, i.e. the actual, current amount.
• Clause 4.6 of the JCT (as unamended) only requires the payee to state the amount that “will become due”, i.e. a future amount.
• However, the subcontract’s amended clause 4.6.2 complied with section 110A(3), as it required that CAR’s interim payment applications included a statement of the sum owed (i.e. the actual or current amount), the date when the interim payment was to be calculated, and the basis on which it was calculated.

The above meant that Placefirst’s pay less notice had not been issued prematurely as it had been issued in response to the application or what the court found was a notice in which the notified sum was determined.

In reaching this conclusion, the court noted there was “no logical reason why a pay less notice should not be given before the time for giving a payment notice has elapsed”, providing an interim application had been made. It was the issue of CAR’s interim application, not when it took effect as a default payment notice, that mattered; the court finding that the application complied with the requirements of a default payment notice even though it would not have had the effect of a payment notice until Placefirst failed to give a valid payment notice (i.e. failed to provide a payment notice within 5 days after the due date).

Key takeaways

While Placefirst ultimately obtained judgment in its favour, a lot of time and cost could have been avoided had it taken a clearer approach to its administration of the subcontract payment mechanism. Some important points arising from the decision include:

• Substance over form. A document can be a valid payment notice even if it is not labelled as one, so long as it states (i) the sum considered due and (ii) the basis of calculation. To avoid disputes, however, it is always best to title your notices and state the contract clause under which it is being issued.
• Payment notices and pay less notices can be served at the same time, but they must be kept as two distinct files. A single document cannot function as both notices, even if they contain the same content.
• Check the wording of your contract. While the court noted that pay less notices can be served after an application for payment but before a payment notice is issued, further arguments as to what is the “Notified Sum” can be avoided by following the order in the contract payment mechanism – i.e. application, payment notice and then pay less notice.
• Diarise the payment mechanism cycle every month, so you are clear on the application date, due date, the payment-notice window, final date for payment, and pay less deadline.
• Be wary of how time is calculated under the contract – deadlines falling on weekends, how notices must be served, whether notices have to be served on a particular person or address. Keep an audit trail to show what you have done.

When it comes to payment, prevention rather than cure should prevail. Do not rely on the court being lenient or hope that a technical loophole will save you. While the Placefirst decision shows a more flexible stance on what counts as valid notice, other rulings have been far more rigid. See Placefirst as a useful reference, not an excuse to cut corners. Make sure your notices are clear, delivered on time, and complete in their own right.