Payless Notice doesn’t Substitute for a Payment Notification

Advance JV & Ors v Enisca Ltdn

Thursday, 13th October 2022

[2022] EWHC 1152 (TCC)

In a decision dated 8 February 2022, an adjudicator decided that Advance did not issue a valid pay less notice against an interim application for payment and that, consequently, Advance was to pay Enisca the sum of £2.7million. In general terms, the amended NEC3 subcontract form provided that:

  • Enisca could make an application for payment on or before the assessment date; 
  • Advance was required to assess the amount due for payment  and certify a payment by issuing a Contractor payment certificate within three weeks of the assessment date;
  • Payment became due 21 days after the assessment date; and
  • A party intending to pay less than the notified sum must notify the other party not later than seven days before the final date for payment.

In its Application 23, e application immediately prior to the application on which the adjudication was based), the difference between the parties was £1,415,902.42. It was common ground that the assessment date of this application was 24 September 2021.

On 22 October 2021, Enisca submitted Application 24 by email. The gross value showed an increase of over £1.4 million, or almost 40%. The last date for providing a pay less notice was 26 November 2021. No payment certificate was provided by Advance to Enisca and no document was provided which expressly sought to respond to Application 24.

On 19 November 2021 (the next assessment date under the Contract), Enisca submitted Application 25, an increase of just £85,661, but the net payment applied for was £2.7million.

On 25 November 2021 (one day before the expiry of the time window for provision of a pay less notice in respect of Application 24 and within the 21 day period for certification following the assessment date in respect of Application 25), Advance sent a package of documents which included a “Certification of payment assessment” expressly said to be for the assessment date of 19 November 2021 (“the Payment Certificate”), i.e. the assessment date referable to Application 25, payment cycle 29. 

The assessment resulted in a negative payment value and the figures was adjusted to show a zero payment. The pay less notice made reference to  “application No 25”, the back-up assessment referred to “application 25” and the sum considered to be due was calculated by reference to the assessment of, and comparison with, the information provided in Application 25. 

Notwithstanding this, Advance said that the pay less notice could be relied upon as a valid notice in response to Application 24 because the contractual requirements for timing and content were met, it was sent before 26 November 2022, and properly construed, the terms of the pay less notice would have indicated to the reasonable recipient that Advance did not intend to make any further payment, either in respect of Application 24 or Application 25.

Here, in the absence of service by Advance of a payment certificate, there was no dispute that the notified sum was the sum contained in Application 24. Enisca noted that it was the “backbone” of the HGCRA that payment cycles exist which create due dates and final payment dates. Provision was made for notices to be given during each of these cycles and pay less notices must be referable to the notice identifying the notified sum. Whilst there was no absolute requirement for a pay less notice to make express reference to the notice to which it is responding, it must nevertheless be clear that it is, in fact, responding to that particular notice. 

The Judge commented that the construction of notices must be approached objectively. How would a reasonable recipient have understood them taking into account the relevant context. The Judge also referred to Coulson on Construction Adjudication: 

“The courts will take a common sense, practical view of the contents of a payless notice and will not adopt an unnecessarily restrictive interpretation of such a notice … It is thought that, provided that the 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.”

A payment notice must be referable to individual payment cycles. Here, Application 25 was an application for a different amount from that previously applied for in Application 24, albeit not by a significant margin, but these applications were, and were intended to be, substantively different and assessed at different dates. It was difficult to see how one notice referable to only one assessment date could possibly be said to be responsive to two applications for payment. The pay less notice referred to Application 25; it was not a pay less notice in respect of, or referable to, Application 24. The timing point, namely the provision of the pay less notice one day before the end of the deadline for Application 24, was no more than neutral in circumstances where the pay less notice was also within the (overlapping) period for service of a pay less notice under Application 25.

If the pay less notice was intended to remedy the failure to serve a payment certificate in relation to Application 24, then it did not make that clear Ji. In the absence of any suggestion that it was designed to plug that gap, the reasonable recipient would have taken it at face value. The decision was enforced

Source Fenwick Elliot

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