Advance JV & Ors v Enisca Ltd

Factual and Procedural Background

The Claimant ("Advance"), a Joint Venture between Company A and Company B, engaged the Defendant ("Enisca") as a sub-contractor under a subcontract dated 21 October 2019 ("the Contract") for work on a water treatment and hydro-electric power generation project ("the Project"). The Contract, based on the NEC3 Engineering and Construction Subcontract with bespoke amendments, incorporated payment terms compliant with the Housing Grants, Construction and Regeneration Act 1996 as amended ("the Act").

Enisca submitted monthly applications for payment under the Contract. A dispute arose regarding the validity of a Pay Less Notice issued by Advance in response to Enisca's Application 24 for payment. The adjudicator decided on 8 February 2022 that Advance did not issue a valid Pay Less Notice against Application 24 and ordered Advance to pay Enisca £2,717,992.88. The parties agreed to resolve the issue by way of this Part 8 claim, with Advance undertaking to pay the adjudicated sum within seven days if the court dismissed its claim.

The Pay Less Notice in question was issued on 25 November 2021 alongside a Payment Certificate relating to Application 25, not Application 24. Enisca contended that the Pay Less Notice was not valid in respect of Application 24. Advance argued that the notice was valid and effectively covered both Application 24 and Application 25.

Advance commenced this claim on 25 January 2022 seeking declaratory relief on the validity of the Pay Less Notice. Enisca consented to amended particulars of claim and the enforcement of the adjudicator's decision was accepted by Advance save for the issues raised in this Part 8 claim.

Legal Issues Presented

1. Whether the Pay Less Notice issued by Advance was a valid notice in response to Enisca's Application 24 for payment under the Contract.
2. Whether a Pay Less Notice must be referable to a specific payment application or payment cycle under the statutory payment regime in the Housing Grants, Construction and Regeneration Act 1996, as amended.
3. The proper interpretation and construction of the Pay Less Notice in the context of overlapping payment cycles and applications.

Arguments of the Parties

Appellant's (Advance's) Arguments

• The Pay Less Notice complied with the contractual timing and content requirements.
• Properly construed, the Pay Less Notice indicated an intention to pay no further sums in respect of both Application 24 and Application 25.
• There is no statutory or contractual requirement that a Pay Less Notice must be referable to a single payment cycle or application; it can validly respond to two applications if served within the stipulated timeframes.
• The erroneous references in the Pay Less Notice (to application number 17 and incorrect statutory sections) do not invalidate it.

Respondent's (Enisca's) Arguments

• The Pay Less Notice was clearly referable only to Application 25, as indicated by express references to "Application No 25" and "AFP25".
• The Pay Less Notice was issued alongside a Payment Certificate expressly relating to Application 25, not Application 24.
• There is a necessary link between a Pay Less Notice and a particular payment cycle or application under the statutory payment regime; notices must be referable to individual payment cycles.
• The Pay Less Notice did not provide notice of an intention to pay less than the notified sum in respect of Application 24 and thus was not valid as to that application.
• The reasonable recipient would not have understood the Pay Less Notice as responding to Application 24.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Jawaby Property Investment Ltd v The Interiors Group Ltd [2016] BLR 328	Effect of statutory payment provisions requiring payment of notified sum irrespective of correctness of valuation.	Confirmed the statutory regime’s draconian effect for failure to serve valid notices and the obligation to pay the notified sum.
Caledonian Modular Ltd v Mar City Developments Ltd [2015] BLR 694	Requirement that payment applications provide reasonable notice triggering the payment period.	Supported the need for clarity in applications for payment to trigger payment cycles.
S&T (UK) Ltd v Grove Developments Ltd [2019] BLR 1	Statutory provisions override contractual terms; importance of paying the notified sum by the final date.	Emphasised that statutory payment regime obligations are paramount over contract terms.
Bexheat Limited v Essex Services Group Limited [2022] EWHC 936 (TCC)	Importance of distinct payment cycles and that adjudications relate to specific applications.	Supported the principle that payment notices and adjudications must relate to discrete payment cycles.
Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749	Objective approach to interpretation of contractual notices.	Applied the objective reasonable recipient test to the interpretation of the Pay Less Notice.
Thomas Vale Construction Plc v Brookside Syston Ltd [2006] EWHC 3637 (TCC)	Pragmatic and commonsense approach to contractual notices.	Rejected overly technical or artificial interpretations of notices.
Henia Investments Ltd v Beck Interiors Ltd [2015] BLR 704	Substance and form requirements for valid payment notices and Pay Less Notices.	Confirmed that notices must clearly state sums due and basis of calculation.
Surrey and Sussex Healthcare NHS Trust v Logan Construction (South East) Ltd [2017] BLR 189	Intention of the sender assessed objectively in the context of the notice.	Distinguished on facts; emphasised overall message and purpose to reasonable recipient.
Grove Developments Ltd v S&T (UK) Ltd [2018] BLR 173	Requirement that notices make clear what they are and provide adequate agenda for adjudication.	Applied to determine whether the Pay Less Notice provided an adequate basis for adjudication.

Court's Reasoning and Analysis

The court carefully examined the statutory payment regime under the Housing Grants, Construction and Regeneration Act 1996 and the contractual terms, which were compliant with the Act. It acknowledged the importance of payment cycles with distinct assessment dates, payment due dates, and final payment dates, each triggering specific notice requirements.

The court held that payment notices, including Pay Less Notices, must be referable to a particular payment cycle or application. Although the Act does not explicitly require a Pay Less Notice to reference a specific application, the wording and statutory context imply that such notices must be linked to the notified sum identified in the relevant payment cycle.

The Pay Less Notice in this case was issued alongside a Payment Certificate expressly relating to Application 25 (assessment date 19 November 2021), and it referred repeatedly to "Application No 25" and "AFP25". There was no clear indication that it was intended as a response to Application 24 (assessment date 22 October 2021), despite overlapping timeframes for serving Pay Less Notices for Applications 24 and 25.

The court rejected the appellant's argument that the Pay Less Notice could validly respond to two applications simultaneously, finding no support for this in the Act or the Contract. The objective reasonable recipient would understand the Pay Less Notice as relating solely to Application 25. The erroneous references to application 17 and incorrect statutory sections were not determinative but reinforced the conclusion that the notice was not intended to respond to Application 24.

The court applied established principles of contractual notice interpretation, emphasizing an objective approach focused on the reasonable recipient's understanding in the contractual context. It found that the Pay Less Notice failed to meet the requirements to be a valid notice in respect of Application 24 and thus could not operate to reduce the sum payable under that application.

Holding and Implications

The court DISMISSED the Part 8 claim brought by Advance seeking declaratory relief on the validity of the Pay Less Notice in relation to Application 24.

The direct consequence is that the Pay Less Notice was not valid to reduce the amount payable under Application 24, affirming the adjudicator's decision that Advance must pay Enisca £2,717,992.88. There is no indication that this decision sets any new legal precedent beyond applying established principles of statutory payment regimes and contractual notice interpretation.