Payment Notices and genuine belief

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In the recent case of Downs Road Development LLP v Laxambhai Construction (U.K.) Limited [2021] EWHC 2441, the Technology and Construction Court (TCC) considered whether a payment notice issued under a Construction Contract to which Part II of the Housing Grants, Construction and Regeneration Act 1996 (Construction Act) applied was valid.

Section 110A (2) of the Construction Act requires that payment notices, which are to be given by the payer no later than 5 days after the payment due date, must specify ‘the sum that the payer considers to be or to have been due at the payment due date in respect of the payment’.

Background

Downs, the employer, appointed Laxmanbhai, the contractor, under a JCT Design and Build contract to construct multiple blocks of flats in London. Every month, Downs would issue two payment notices to Laxmanbhai; the first was issued on time, stating the amount due to be nil or £1 and the second notice was issued after the 5 day deadline, stating the actual amount that would be paid. The first notice was in effect a ‘holding’ notice.

Laxmanbhai grew tired of the delayed payments and so launched an adjudication in February 2021, claiming that the amount of nil or £1 in the first notice was not the true value.

Judgement

The adjudicator found in Laxmanbhai’s favour, but Downs did not pay, and so enforcement proceedings were commenced in the TCC.

Whilst the adjudication was to claim the true value of Laxmanbhai’s payment application, rather than dispute the validity of the payment notice, the TCC determined that the word ‘considers’ under Section 110A(2) is crucial for establishing the validity of a payment notice. The TCC found that Downs did not ‘consider’ the nominal value in the first payment notice was due, in view of the fact that Downs’ email, which accompanied the notice, commented that a further notice would be issued and insinuated that the further notice would be for a different amount. The payment notice did not therefore comply with the requirements of the Act and so was invalid.

Comments

For those submitting payment notices, you must make a genuine effort to evaluate the amount claimed in a payment application. It is important to keep the evidence of the evaluation, to support any defence to a claim by the payee that a payment notice is invalid.

The payment notice must be clear and unambiguous and specify the basis on which the amount considered as due is calculated. This is a requirement of the Construction Act. Providing sufficient details to the payee will reduce the potential for adjudication.

To find out more about how our construction team can help you, please contact Lucilla Waugh on 0191 211 7984 or e-mail [email protected]