Pay Less Notices in the Construction Industry
What is a Pay Less Notice?
Pay Less Notices were introduced by the 2011 amendments to the The Housing Grants, Construction and Regeneration Act 1996 (the “Construction Act”).
In a post back in 2011 we advised:
“The canny contractor may well use the new default notice provisions to enhance returns whereas the employer/contractor who is ignorant of the “Pay Less” regime may well find itself exposed to claims that it can’t do much about”.
Pay Less Notices are a notice from the employer advising of an intent to pay to the contractor a sum less than what has fallen due for payment.
What is needed for a valid Pay Less Notice?
Section 111 of the The Housing Grants, Construction and Regeneration Act 1996 states:
(3) 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.
(4) 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.
Most Construction Contracts give effect to the above provisions of the Construction Act. The provisions are easy to understand and easy to comply with.
The JCT contracts say Pay Less Notice must be given no less than 5 days before the final date for payment.
Bespoke amendments typically reduce this to 1 day before the final date for payment.
If this date is missed the Pay Less Notice will be invalid.
If the construction contract does not include provisions equivalent to the above sections of the Construction Act then they will be implied into the contract by the Scheme for Construction Contract Regulations (“Scheme”).
Examples of invalid Payless Notices
There are many cases concerning what may make a Payless Notice invalid.
In Grove Developments Ltd v S&T (UK) Ltd [2018] EWHC 123 (TCC) when referring to the Scottish case of Muir Construction Limited v Kapital Residential Limited [2017] CSOH 132, the Pay Less Notice was invalid because as the judge said:
“From none of the information provided could the reasonable recipient work out the basis on which the zero sum figure was calculated.
There is no calculation put forward which would allow the reasonable recipient to understand how that figure is arrived at.
There is no specification which would allow the reasonable recipient to make any sense of the figure arrived at”
On the face of it, therefore, the pay less notice was defective because it did not set out a single figure or sum (other than the conclusion of ‘zero’).
It is therefore hardly surprising that the learned judge concluded that, as a calculation explaining why nothing was due, the pay less notice was entirely deficient”).
In Grove the Pay Less Notice simply referred to a previous payment application. But it was clear what was said to be due and why.
The judge said:
“a pay less notice will be construed by reference to its background, in order to see how a reasonable recipient would have understood it”
and that contrived or artificial arguments as to the validity of a Pay Less Notice would be rejected.
In Jawaby Property Investments Limited v Interiors Group Limited [2016] EWHC 557 (TCC) the judge said:
“an essential requirement for the service of a contractual notice [is] that the sender has the requisite intention to serve it.
The senders’ intention is a matter to be assessed objectively taking into account the context”.
What if the Payless Notice is invalid?
In ISG Construction Limited v Seevic College [2014] EWCH 4007 (TCC) the judge reaffirmed the principle that if no Pay Less is served against an amount that has fallen due for payment (or the Payless Notice is invalid) then the amount notified as due must be paid.
The requirement of a party to pay the notified sum that was not the subject of a valid Pay Less Notice was emphasised in the recent case of BexHeat Ltd v Essex Services Group Ltd [2022] EWHC 936 (TCC).
A party’s ability to raise any crossclaims or counterclaims in its defence is limited to the extent that it cannot rely on a claim that should have been the subject of a Pay Less Notice.
What if the Pay Less Notice is valid?
If the Pay Less Notice is valid then that is all that is due until the issue is determined either by a court or, more preferably, an adjudicator. Please see out guide to Adjudication here.
Where a Payless Notice is valid, there are no rights to suspend works and no rights to terminate the contract.
The substantive dispute needs to be resolved. If the valuation under the Notice is wrong the contractor will be entitled to interest.
But the costs of the adjudication will not be recovered.
Need help challenging a Pay Less Notice?
Challenging a Payless Notice can be a complex process, but it is important to ensure that your rights are protected and that you are not unfairly disadvantaged.
Seeking legal advice from a solicitor experienced in construction law, such as Matthew Dillon of MJD Solicitors, can help you navigate the process and understand your options.
To discuss further please contact Matthew Dillon of MJD Solicitors on 01277 280761
This article is for information purposes, does not constitute legal advice and should not be relied upon. For terms and conditions of this article please read here
