Case No. HT-2025-000039 , HT-2-25-000040 - [2025] EWHC 2005 (TCC)

The parties are agreed that - even if I decline to enforce the adjudicator’s decision - I should, nonetheless, go on to decide whether the payless notice was valid, this being upon the assumption that the adjudicator did, indeed, have jurisdiction and the 1996 Act applies.

A payless notice is provided for by section 111(3) of the 1996 Act, which says:

“The payer or a specified person may, in accordance with this section, give to the payee a notice of the payer’s intention to pay less than the notified sum”.

Section 111(4) sets out the requirements for a valid payless notice as follows:

“A notice under subsection (3) must specify:

(a)

the sum that the payer considers to be due on the date the notice is served; and

(b)

the basis on which that sum is calculated.

It is immaterial for the purposes of this subsection that the sum referred to in paragraph (a) or (b) may be zero”.

The decision of Joanna Smith J in Advance JV v Aniska Limited [2022] EWHC 1152 (TCC), at paragraphs 46 and 47, provides a helpful summary of the relevant law relating to the required content of payment and payless notices under the 1996 Act and how the content should be construed. Both parties rely on this in their skeleton arguments.

“46.

I was taken during the hearing to a number of authorities in the context of the proper approach to be taken by the Court to the interpretation of contractual notices, including Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 (‘Mannai), Thomas Vale Construction Plc v Brookside Syston Ltd [2006] EWHC 3637 (TCC) (‘Thomas Vale’), Henia Investments Ltd v Beck Interiors Ltd [2015] BLR 704 (‘Henia’), Jawaby, Surrey and Sussex Healthcare NHS Trust v Logan Construction (South East) Ltd [2017] BLR 189 (Surrey and Sussex’), Grove Developments Ltd v S&T (UK) Ltd [2018] BLR 173 (‘Grove Developments’) and S&T (UK) Ltd v Grove Developments Ltd [2019] BLR 1 (‘S&T’) (in which the Court of Appeal upheld the reasoning of the Judge on this issue at [57]). There is no need to set these out at length; the principles that they establish and which I must apply in this case are uncontroversial.

47.

In summary, the approach to be taken by the court as gleaned from these authorities is as follows:

i)

In considering the true construction of a contractual notice (including notices under the payment regime in the Act; see Grove Developments per Coulson J at [21]-[22] and S&T in the Court of Appeal at [58] per Sir Rupert Jackson), the question is not how its recipient in fact understood it. Instead, the construction of the notices must be approached objectively. The issue is how a reasonable recipient would have understood the notices, i.e. a reasonable recipient ‘circumstanced as the actual parties were’ (see Mannai at 767 G-H and 768B-C per Lord Steyn).

ii)

The notice must be construed taking into account the ‘relevant objective contextual scene’, i.e. the Court must consider ‘what meanings the language read against the contextual scene will let in’; (see Mannai at 767H and 768A-B). This means that, amongst other things, the reasonable recipient will be credited with knowledge of the relevant contract (see Mannai at 768B-C).

iii)

The purpose of the notice will be relevant to its construction and validity (Mannai at 768E).

iv)

The Court will be ‘unimpressed by nice points of textual analysis or arguments which seek to condemn the notice on an artificial or contrived basis’; (Thomas Vale per HHJ Kirkham at [43]; Grove at [26]). Instead, as Sir Peter Coulson says in paragraph 3.36 of his book on Construction Adjudication (4^th edition 2018), focusing specifically on payless notices:

‘The Courts will take a commonsense, 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’.

v)

There is no principled reason for adopting a different approach to construction in respect of different kinds of payment notices (for example, because some may give rise to more draconian consequences than others) as that would be contrary to the guidance in Mannai (see Grove at [27]). However:

‘the particularly adverse consequences for an employer that follow from, say, a contractor’s unanswered application/payment notice are relevant to the test of the reasonable recipient’.

vi)

To qualify as a valid notice, any payment notice must comply with the statutory (and, if more restrictive, the contractual) requirements in substance and form (Henia per Akenhead J at [17]). Payment notices and payless notices must clearly set out the sum which is due and/or to be deducted and the basis on which the sum is calculated. Beyond that, the question of whether a notice is or is not a valid notice is ‘a question of fact and degree’; (Grove at [29] and S&T at [53]).

vii)

Over and above the question of whether a notice has achieved the required degree of specificity, will be the additional question of whether the document that is alleged to constitute a valid notice was in fact intended to be such and whether it is ‘free from ambiguity’; (Henia at [17] and Grove at [42]). The sender’s intention is a matter to be assessed objectively, taking into account the context. (Jawaby at [43], [59] and [63]).

viii)

Although in Grove, Coulson J observed that payment notices must make plain what they are, there is no requirement for a particular type of notice, such as a payless notice, to have that title or to make specific reference to the contractual clause in order to be valid: ‘[t]he question is whether, viewed objectively, it had the requisite intention to fulfil that function’. (Surrey & Sussex at [65]).

ix)

One way of testing the validity or otherwise of a payless notice will be to see whether it ‘provided an adequate agenda for an adjudication as to the true value of the works…’; (Henia at [32] and Grove at [26])”.

I set out the payless notice at paragraph 7 above. It took issue with specified, quantified claims which were at bullet points 1-5, 7 and 9 but it also rejected wholesale certain heads without referring to figures. Those are bullet points 6, 8, 10 and 11. The quantified and unquantified heads exceeded £663,000, and so the notice concluded that the sum owing was £0.

Mr Frampton submits that the notice is invalid because it does not comply with sub-section 111(4)(b). He argues that it does not set out a sum which the Jameses generally considered to be due, and does not provide an adequate basis for saying why the sum payable should be £0. In particular, he says, a number of the bullet points did not say what sum Mr and Mrs James were accepting was due. He submits that the total of the figures provided in the quantified bullet points came to £295,000 odd and, therefore, did not justify withholding the sum of £663,000 odd. He submits, therefore, that the payless notice did not provide an adequate agenda for a true value adjudication or make tolerably clear what was being withheld and why.

Mr Hanna submits that the letter of 27 November plainly satisfies the requirements of sub-section 111(4). In my judgment, he is right. If a payless notice is deemed invalid, it may have draconian consequences for the paying party. The Scheme was not intended to encourage overly technical arguments about what is and what is not a valid notice. As Sir Peter Coulson says, as long as the notice makes “tolerably clear what is being withheld and why, it will be valid”.

Mr Hanna produced a helpful table which sets out the 11 bullet points in the payless notice and explains how they are referable to sums claimed in the payment application by reference to the Excel spreadsheet attached to it.

The total amount claimed in the payment application in respect of the items referred to in the 11 bullet points was £1,245,145.55. In the payment application, RBH claimed a balance due of £663,016.16 (line 543 of the spreadsheet). That was based upon a total valuation of £1,973,055.20 (line 539 of the spreadsheet), less payments received to date of £1,310,039.04 (line 541 of the spreadsheet). It follows that, since the letter of 27 November 2024 disputed items with a total value of £1,245,140.55 no payment was due on that application and the sum due, as stated in the letter, was £0.

I consider that how the bullet points in the letter related to the payment application would have been understood by any reasonably objective reader who had knowledge of the contract works, and I consider that those bullet points set an adequate agenda for an adjudication by identifying specifically which elements of the payment application were not accepted and, briefly, why they were not accepted. I do not accept that the letter had to set out an arithmetical calculation in order to amount to a valid payless notice. That would be to read into the statute an additional requirement that does not appear in section 111 and would be to take an overly prescriptive approach to the contents of a notice which would be contrary to the case law as summarised in Advance JV and also by reference to the comment in Sir Peter Coulson’s book.

For those reasons, I find that the letter dated 27 November 2024 was a valid payless notice. The result, therefore, is that no sums were due to RBH pursuant to its payment application. The adjudication was wrongly decided. Accordingly, I conclude that the Defendants succeed on their Part 8 claim.