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Can a pay less notice apply to two applications?  

The consequences of failing to serve a valid pay less notice can be severe.  In the recent case Advance JV v Enisca, this led to the contractor being liable to pay its subcontractor £2.7 million more than it considered was the proper entitlement.  It is an interesting case in which the court summarised the law and dismissed Advance’s creative attempts to avoid these consequences.

Construction contracts must have a payment mechanism that complies with the Housing Grants Construction Regeneration Act 1996 (the Act).  Parties can amend standard form contracts if they still meet the mandatory criteria of the Act.

A contract must provide for the submission of an application for payment (AFP) and a payment notice certifying the sum to be paid.  If the paying party does not want to pay the sum (or no payment notice has been served) it must serve a pay less notice.

The key dates in Advance JV were:

  • 22 October 2021 – AFP 24
  • 19 November 2021 – AFP 25
  • 24 November 2021 – pay less notice against AFP 25
  • 25 November 2021 – deadline for pay less notice against AFP 24

There was no payment notice or pay less notice expressly served in for AFP 24 and, based on this failure, Enisca sought a ‘smash and grab’ adjudication award.  It succeeded and Advance JV brought a Part 8 claim for a declaration that there was in fact an effective pay less notice against AFP 25.

If the paying party does not want to pay the sum (or no payment notice has been served) it must serve a pay less notice.

By a quirk of the bespoke amendments to the contract, the pay less notice for AFP 25 was served prior to the deadline for AFP 25.  Advance JV argued that it should either be understood as referring to AFP 24 or could apply as a pay less notice against both applications.

These arguments failed.  The 24 November pay less notice expressly referred to AFP 25 and was based on the assessment date and the calculations for AFP 25.

A reasonable recipient would have understood it to refer to AFP 25 and only AFP 25.  It was not possible for a pay less notice to apply to two separate AFPs.  Accordingly, Advance JV was liable to pay in full AFP 24.

As well as being a further reminder of the importance of issuing timely notices in response to applications for payment, the case gives a helpful summary of how the court will interpret such notices.

 

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This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full General Notices on our website.

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