This was a part 8 application by Advance for a declaration concerning the validity of its Pay less Notice (PLN) in respect of two payment applications (AFP24 and AFP 25) by ENISCA.

An adjudicator decided Advance did not issue a valid PLN against AFP 24 and awarded ENISCA £2.7m. In the court application it was agreed that if Advance was not entitled to the declaration sought, it would pay the adjudicator’s decision in 7 days so that there was no need for EN ISCA to apply to enforce the decision.

The contract was an NEC3 subcontract with bespoke amendments. It was agreed by the parties and accepted by the court that the payment terms complied with the requirements of the Act. That being the case, the court was concerned with the contractual provisions except in one important respect- the payment cycle.

The contract provided for an assessment date by which ENISCA had to make its monthly application for payment; Advance was to issue a payment certificate within 27 days of the assessment date; the due date was 27 days after the assessment date; the final date for payment was 27 days after the due date.

Any PLN was to be served no later than 7 days before the final date for payment.

On 22 October 2027 ENISCA submitted AFP24 by email for a gross value of £5,737m (£7.4m more than the previous month). The net payment applied for was £2.777m. No payment certificate (which would have been due by 72 November 2027) was provided by Advance and no document was sent which expressly sought to respond to AFP24.

On 79 November 2027, the next assessment date, ENISCA submitted AFP25, in the gross sum of £5.277m (an increase of £85,600 odd over AFP24). On 25 November, one day before the window for giving a PLN in respect of AFP24), and within the certification period for assessment date for AFP25, Advance uploaded to the electronic document system for communications, a package which included a payment certificate for the assessment date of 79 November 2027, i.e. the assessment date referable to AFP25. Attached to it were a spreadsheet detailing the assessment, and advances alternative assessment, a PLN and ENISCA’s own AFP25.

The PLN was headed and clearly identified as such and contained the reference for AFP25. Advance’s case was that the PLN could be relied on as a valid notice in response to AFP24. That it satisfied the timing and content requirements of the Act and, properly construed, a reasonable recipient would have understood Advance did not intend to make any further payment in respect of AFP25 or AFP24.

After setting out the provisions of sections 770, 770A, 770B and 777 of the Act, the court emphasised that there was an overriding obligation to pay the notified sum. This did not preclude a subsequent challenge to the true value by either party, but in the meantime the notified sum was to be paid. The court recognised this could have draconian consequences for party who failed to serve a PLN. But that was the acknowledged effect of the statutory provisions.

It was ENISCA’ contention that the existence of a payment cycle to create a due date for payment and final date for payment was essential to the operation of the payment mechanism and therefore the ability to serve a valid payment notice or PLN .. The pointed to the case of Bexheat Ltd v Essex Services Ltd[/3} in support.

The court agreed. It was plain from a review of the payment regime under the Act that payment notices were required to referable to individual payment cycles. An individual PLN had to be referable to the payment notice in which the notified sum against which it was given was
identified. Bexheat confirmed that view.

Applications 24 and 25 were and were intended to be substantively different, assessed at different dates {22 October and 19 November) and they were for different amounts.

Advance had a second string to their bow. There was nothing in the Act or contract to prevent a notice being given against more than one payment application. They contended their PLN against AFP25 could respond to AFP24 as well. The court rejected this novel proposition for a number of reasons.

i) The use of the terms “App25” and “AFP25” clearly pointed to an intention that the PLN was to related to that application.

ii) Nothing in the PLN or elsewhere in the package of documents, pointed to it being a response to AFP24. The notice contained Advance’s own assessment of ENISCO’s assessment of valuation at 19 November 2021 i.e. the assessment giving rise to the notified sum at AFP25.

iii) The fact the notice was given one day before the final date for payment of AFP24 was a neutral factor. [73] [2022] EWHC 936

vi) The use of the terms “App25” and “AFP25” clearly pointed to an intention that the PLN was to related to that application.

v) Nothing in the PLN or elsewhere in the package of documents, pointed to it being a response to AFP24. The notice contained Advance’s own assessment of EN ISCO’s assessment of valuation at 19 November 2021 i.e. the assessment giving rise to the notified sum at AFP 25.

vi) The fact the notice was given one day before the final date for payment of AFP24 was a neutral factor.

Finally the court rejected the argument that there was justification for viewing the PLN on a “broader level”. The facts did not warrant such an approach. The declaration was refused.

Comment

This case discusses several interesting points. First, it is useful to be reminded that it is the Act and not the Contract which lays down the payment regime. The contract should and usually will identify a means of establishing the payment cycle, from which the due date for payment, final date for payment and last date for giving a PLN can be calculated. {If the contract does not do so then the Act and Scheme will supply what is missing or replace non Act-compliant provisions.)

Second, the court found that the PLN in question could not serve to answer two separate payment applications. It remains to be seen whether this is possible in different circumstances and if and when a PLN is so designed and expressed.

Third it explores objectively speaking, what a reasonable recipient, in the position of the actual recipient (that is with that party’s knowledge, for example of the contract) would understand the notice to be responding to.

Fourth, whilst all notices are equal, it appears some are more equal than others.

Thus payment notices (whether in the form of an application for payment or a certificate) and PLNs will all be construed using the same rules, and strictly; but because the absence of a valid PLN has the most draconian consequences, there is the possibility, hinted at in the judgment, that it may be afforded a little more leeway.

This article was originally written and published on the internet by Ken Salmon of Slater Heelis.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.

BDAS specialise in: providing contract advice, resolving construction disputes, managing construction claims & adjudications and will give you competitive, independent advice tailored to your specific construction problems. 

If you could benefit from this please call Jon now on 07795 231 231 or email: Enquiry@BDAS.co