As the party issuing the Pay Less Notice (the payer) it can be tempting simply to state "zero" or "nil", particularly if time is short. However, the law requires more. S111(4) of the Housing Grants Construction and Regeneration Act 1996 as amended sets out the requirements of a pay less notice. It must specify:
(1) the sum that the payer considers to be due on the date the notice is served; and
(2) the basis on which that sum is calculated.
Therefore, even when the sum considered to be due is zero, an explanation of how this sum of zero has been calculated must be included the notice.
But what does this mean in practice? A sentence? A fully itemised spreadsheet? In general terms, the notice should give details of what is being deducted and why. There is no prescribed form for a pay less notice. The courts have produced some guidance, most of which is focussed on how a notice should be clear and unambiguous. Perhaps the most helpful guidance in respect of pay less notices comes in Henia Investments Inc v Beck Interiors Ltd [2015] EWHC 2433 (TCC) where the court stated that such notices should provide an adequate agenda for adjudication.
The claimant – Henia - was the Employer in a construction contract with Beck - the Contractor. Henia sought various declarations from the court concerning an interim application for payment made by Beck. The Contract Administrator failed to issue an interim certificate on time meaning that the sum due for that period was the sum applies for by Beck. Henia issued a pay less notice to Beck on time. This notice stated that the sum of "£0" was due to Beck and that this was based on the Contract Administrator's valuation and certificate (issued late), together with Henia's entitlement to liquidated damages.
One of the issues to be decided by the court was whether Henia's pay less notice was an effective or valid; and, in particular, whether or not the pay less notice could effectively challenge the valuation certified by the Contract Administrator or an interim payment notice. The court had no difficulty in deciding that it could. It held that the pay less notice could not only raised deductions specifically permitted by the Contract and legitimate set-offs, but it could also deploy Henia's own valuation of the Works. All Henia did was to challenge Beck's interim application for payment by way of putting forward the Contract Administrator's most recent evaluation. There was no suggestion that Henia was acting in anything other than a bona fide way in doing so. More specifically, the court went on:
"The Pay Less notice…. would have provided an adequate agenda for an adjudication to the true value of the Works and the validity of the alleged entitlement to liquidated damages for delay." [paragraph 32 of the judgement]
Therefore, it did not matter that the notice stated zero and referred to the Contract Administrator's evaluation. A decision maker would be able to determine what was in dispute in terms of the true value of the works. And this is key: simply stating zero does not provide an adjudicator with any starting point, nor indeed the recipient of the pay less notice.
Another way to look at may be to consider whether the pay less notice gives the recipient all they need to know. In Surrey and Sussex Healthcare NHS Trust v Logan Construction (South East) Ltd [2017] EWHC 17 (TCC) the court applied Henia v Beck in similar circumstances. It looked at whether an email and attachments purporting to be a pay less notice could provide an adequate agenda for adjudication. The court held that it could and stated:
"In this case, the documents sent by email on 21 September 2016 provided an adequate agenda for an adjudication as to the true value of the Works on an interim basis for the purposes of Valuation No.24. Logan was contending for an entitlement to £1,015,557.95. The Trust was contending for a value of only £14,235.43. There was a detailed breakdown of the Trust’s position. There was nothing more which Logan needed to know." [paragraph 61 of the judgement]
Thus, a pay less notice needs to state how the sum arrived at has been calculated. There is no prescribed form for this, but it should provide an adequate agenda for adjudication. Simply stating zero on a pay less notice provides no starting point for what is valued and why.
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