The starting point is section 110A (2)(a) of HGCRA 1996 ("the Act"), which makes it a statutory requirement for the Employer/Payer to give a payment notice to the Contractor/Payee which (i) sets out the sum that it considers to be, or to have been due, at the payment due date; and (ii) the basis upon which that sum has been calculated. Any payment notice must comply strictly with these two requirements in order to be considered a valid payment notice.

The question of whether an Employer/Payer could competently adopt a two stage payment process whereby it:

  • Firstly issues a "holding notice" containing a negligible sum, which is not representative of the sum actually believed to be due, in response to a Contractor's/Payee's Interim Application for Payment; and
  • Secondly, at some later date, issues a notice containing a revised sum which does actually represent what the Employer/Payee genuinely considers to be due

was dealt with in the case Downs Road Development LLP v Laxmanbhai Construction (UK) Ltd [2021] EWHC 2441 (TCC). In this case, the Employer issued a "holding" payment notice along with a covering email advising the Contractor that it would issue a further payment notice in due course as it had been "difficult to get the valuations assessed in a timely manner" [see para 15 of Judgment].

The case was referred to the TCC by the Employer following a true value adjudication in which the adjudicator found a sum of £103,826.98 due to the Contractor. HH Judge Eyre QC presided. In his judgment he held that the first payment notice was not valid as it failed to reflect what the Employer/Payer genuinely considered to be due. This was inconsistent with the requirements of section 110A (2)(a) of the Act.

Judge Eyre QC found that it did not matter that the Employer gave notice to the Contractor that the figure may be altered at a later date. This did not remove or diminish the requirement to issue a payment notice in accordance with the requirements of the Act.

Practical Considerations

  • For the Employer: all payment notices should be issued strictly in accordance with the requirements of the Act and must set out both the sum due at the due date and provide an explanation of how that sum has been calculated. Failure to do so could result in a payment notice being treated as invalid and expose the Employer/Payer to a "smash and grab" adjudication by the Contractor.
  • For the Contractor: if a payment notice fails to contain the sum that the Employer/Payer genuinely considers to be due and/or fails to provide a basis for calculation, the notice may be invalid. In the circumstances, the Contractor may be entitled to treat its Interim Application for Payment as the default payment notice in accordance with section 11B (4) of the Act and, in absence of payment from the Employer, refer the matter to adjudication on a "smash and grab" basis.