[2025] EWHC 1526 (TCC)

The email attached three documents.

The first was an invoice, in the following terms:

“Interim Payment for works Completed at 71-75 Shelton Street £100,000.00

Sub Total £100,000.00

VAT £20,000.00

TO PAY £120,000.00

…Payment due within 14 days from the date of this Invoice.

Please make payment to the following:

LAPP Industries Ltd…”

(Bank account details were then given)

The second was a breakdown of what was essentially a final account for the works at the premises. Save for electrical works, figures were given for each item of work. This account totalled £588,590.60.

The third document was an application as follows, with emphasis as original:

“ September 2022- March 2023

Application for interim payment…

Value* of work carried out as attached valuation: £588,590.60

* Excluding Electrical & Data Works yet to be finalised

Less: payments previously received: £303,712.00…

Total payment now due: £341,854.32

Payment requested on account: £100,000.00 ex VAT

VAT £ 20,000.00

Total Interim Payment Requested £120,000.00

Payment is due within 14 days from the date of this application.”

Formations did not issue any valid Payment Notice or Pay Less Notice. LAPP’s case is that the Application therefore became a Default Payment Notice. LAPP say that it was entitled to the notified sum of £120,000 (inclusive of VAT). This was not paid by Formations.

On 22 November 2024, LAPP commenced the adjudication by serving its Notice of Adjudication. On 25 November 2024, Ms Grace Cheng was appointed as the Adjudicator by the Chairman of TECBAR.

On 24 December 2024, the Adjudicator issued the Decision in LAPP’s favour. She concluded that there was a notified sum of £120,000. LAPP was awarded payment of the notified sum and interest. Formations were to pay those sums within 14 days and were liable for the whole of the Adjudicator’s fees.

I should say for completeness that Counsel referred me to a small number of additional documents passing between the parties from February to April 2023, but I do not think it is necessary to lengthen this Judgment by setting those out.

The Act, as amended by the Local Democracy, Economic Development and Construction Act 2009, provides by section 109 that:

“(1)A party to a construction contract is entitled to payment by instalments, stage payments or other periodic payments for any work under the contract unless—

(a)it is specified in the contract that the duration of the work is to be less than 45 days, or

(b)it is agreed between the parties that the duration of the work is estimated to be less than 45 days.

(2)

The parties are free to agree the amounts of the payments and the intervals at which, or circumstances in which, they become due.

(3)

In the absence of such agreement, the relevant provisions of the Scheme for Construction Contracts apply.”

Dates for payment are set out in section 110 and, again, the Scheme applies if the contract does not comply therewith.

Sections 110A, 110B and 111 provide for notices and the requirement upon the payer to pay the sum notified. In summary, so far as relevant for present purposes, the payer is obliged to pay the sum notified unless it has served a valid Payment Notice or Pay Less Notice.

In the present case, it is not in dispute that:

The relevant provisions of the Scheme are as follows:

“Entitlement to and amount of stage payments

2.

— (1) The amount of any payment by way of instalments or stage or periodic payments in respect of a relevant period shall be the difference between the amount determined in accordance with sub-paragraph (2) and the amount determined in accordance with sub-paragraph (3).

(2)

The aggregate of the following amounts—

(a)

an amount equal to the value of any work performed in accordance with the relevant construction contract during the period from the commencement of the contract to the end of the relevant period (excluding any amount calculated in accordance with subparagraph (b)),

(b)

where the contract provides for payment for materials, an amount equal to the value of any materials manufactured on site or brought onto site for the purposes of the works during the period from the commencement of the contract to the end of the relevant period, and

(c)

any other amount or sum which the contract specifies shall be payable during or in respect of the period from the commencement of the contract to the end of the relevant period.

(3)

The aggregate of any sums which have been paid or are due for payment by way of instalments, stage or periodic payments during the period from the commencement of the contract to the end of the relevant period.

(4)

An amount calculated in accordance with this paragraph shall not exceed the difference between—

(a)

the contract price, and

(b)

the aggregate of the instalments or stage or periodic payments which have become due.

Dates for payment

3.

Where the parties to a construction contract fail to provide an adequate mechanism for determining either what payments become due under the contract, or when they become due for payment, or both, the relevant provisions of paragraphs 4 to 7 shall apply.

4.

Any payment of a kind mentioned in paragraph 2 above shall become due on whichever of the following dates occurs later—

(a)

the expiry of 7 days following the relevant period mentioned in paragraph 2(1) above, or

(b)

the making of a claim by the payee…

7.

Any other payment under a construction contract shall become due

(a)

on the expiry of 7 days following the completion of the work to which the payment relates,

or

(b)

the making of a claim by the payee,

whichever is the later.

Final date for payment

8.— (1) Where the parties to a construction contract fail to provide a final date for payment in relation to any sum which becomes due under a construction contract, the provisions of this paragraph shall apply.

(2)

The final date for the making of any payment of a kind mentioned in paragraphs 2, 5, 6 or 7, shall be 17 days from the date that payment becomes due.”

The amended provisions of the Act, in particular Sections 110A, 110B and 111, whereby a payee might be entitled to be paid a notified sum, came into force in 2011. They began to be utilised by payees in the mid-2010s. This gave rise to numerous “smash and grab” adjudications, in which payees had served the requisite notices, but payers had not responded in time with a valid Payment Notice or Pay Less Notice. This regime is a rigorous one, with potentially “draconian” consequences for paying parties. As summarised by Carr, J (as she then was) in Jawaby Property Investment Ltd v The Interiors Group Ltd. and others [2016] EWHC 557 (TCC):

“[39] The interim payment provisions in the Contract reflect the requirements of s. 110A and s. 111 of the Act. Their effect is to require an employer at periodic intervals to pay “the notified sum” by a final date for payment, irrespective of whether or not that sum in fact represents a correct valuation of the work to date. If an employer fails to give relevant notice, irrespective of whether this is by mistake, administrative oversight or any other reason, then a sum for which the contractor has applied becomes immediately contractually payable, even if it is wrong in valuation terms.”

This new regime in turn led to a number of decided cases in the TCC, in which Judges were anxious to ensure that payees should not take unfair advantage of these provisions.

Although Counsel cited a number of these cases dating from 2015 onwards, I think that the law is now summarised in two decisions in this court.

The first is Kersfield Developments v Bray and Slaughter [2017] EWHC 15 (TCC), where O’Farrell, J explained the position as follows:

“[31] For the purposes of the payment provisions in the Act, an application for interim payment must be sufficiently clear and unambiguous in form, substance and intent so that the parties have notice of the application made… An interim application must be obviously identifiable as such and it must set out, as a minimum, the sum claimed as due and the basis on which such sum is calculated.

[32] The parties are free to agree additional requirements as to the form, content and substantiation of the application, provided that they do not conflict with the statutory regime.”

More recently, Joanna Smith, J set out the relevant principles in Advance JV v Enisca Ltd [2022] EWHC 1152 (TCC) as follows at para 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 (4th ed. 2018), focusing specifically on Pay Less 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 Pay Less 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 Pay Less 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 Pay Less 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]).”

As I have said, these two cases, in my view, sufficiently summarise the current state of the law. This is subject to two footnotes: