The importance of clear Pay Less Notices

David Owens and Freyja McLoughlin discuss the importance of clear Pay Less Notices as shown in the recent case of Advance v Enisca.

Advance JV and others v Enisca Ltd [2022] EWHC 1152 was heard in the TCC in May 2022. The case involved the consideration of the validity of a pay-less notice issued by Advance to Enisca. The payless notice was questionable mainly because it referred to multiple payment notices. The Judge found in the case that the pay less notice was not valid, and thus agreed with the decision the adjudicator had found previously that Advance was to pay Enisca the sum of £2.7 million.

The case itself centred around the design and construction of a new water treatment works system. Advance, a joint venture between Balfour Beatty and MWH Treatment Ltd, was engaged to carry out the work and they subsequently subcontracted to Enisca to design, supply and install the LV electrical installation for the project. In general terms, it was common ground between the parties 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.

On 22 October 2021 Ensica issued Application 24, but Advance did not respond until 25 November. This was one day before the expiry of the time window for serving a pay-less notice, and Advance’s response took the form of several documents being uploaded to the parties’ shared document system. The documents uploaded, including a payment certificate and a pay less notice, referred to both Application 24 and also Application 25, which had been issued on 19 November 2021. Advance then paid nothing in respect of Application 24.

An adjudicator was appointed to decide on the validity of the non-payment of Application 24, and they rejected Advance’s argument that the pay less notice issued on 25 November applied to Application 24 and consequently ordered that Advance was to pay Enisca £2.7 million. Advance subsequently referred the matter to court.

Enisca had argued that the Construction Act 1996’s payment regime requires notices to be referable to individual payment cycles. They rooted this argument in the wording of Section 111(3) which states ‘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’. The court agreed with Enisca stating ‘it is a plain from a review of the payment regime under the Act that payment notices are required to be referable to individual payment cycles’ and thus put another way ‘the pay less notice (which is expressing an intention to pay less than the notified sum) must be referable to the payment notice in which the notified sum is identified’.

The court also rejected Advance’s submission that nothing in the Contract nor in the Act precludes a pay less notice from responding to two applications. The Judge remarked ‘it is difficult to see how one notice referable to only one assessment date could possibly be said to be responsive to two applications for payment’.

Finally, the Judge said there was no reference in the pay less notice to Application 24. He found that objectively no-one in Enisca’s shoes would have understood that the pay less notice was intended to relate to Application 24 and therefore Advance’s claim was dismissed in its entirety, and they were ordered to pay the sum due.

Takeaways:

• A pay less notice must refer to just ONE payment Application in order to avoid uncertainty/potential invalidity;
• Payment Notices are judged objectively;
• Serve your payment notice promptly so it is very clear what payment cycle they are referring to; and
• As well as all the above, make clear what payment notice you are referring to by including the number clearly within the notice.

The case re-enforces the firm approach Courts take when considering pay less notices. In order to avoid smash and grab adjudications and payment liability it is vital that valid payment and pay less notices are served; bearing in mind the takeways above will help ensure this happens.

David Owens is a Partner and Freyja McLoughlin is a Paralegal at Sharpe Pritchard LLP.

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