1. Can a Payment Notice be a Pay Less Notice?

Vision Construct Limited -v- Gypcraft Drylining Contractors Limited [2025] EWHC 2707 (TCC)

Factual background:

Vision Construct Limited (“VCL”) and Gypcraft Drylining Contractors Limited (“Gypcraft”) entered into a JCT Design & Build Subcontract 2016 (with amendments) on 12 November 2020 (“the Subcontract”).

On 16 January 2023 Gypcraft issued its interim Application for Payment 23 (“Application 23”), seeking payment of the sum of £342,385.52.

On 7 February 2023, VCL purported to issue a payment notice (“the Payment Notice”) stating that the sum due to Gypcraft was £125,437.77. This amount was subsequently paid to Gypcraft.

VCL did not serve a separate pay less notice, and the Payment Notice itself was issued 5 days after the payment notice deadline under the Subcontract.

Gypcraft referred a dispute to adjudication seeking the difference between the sum stated in Application 23 and the sum stated in the Payment Notice as a notified sum (£216,947.75).

The Adjudicator found that:

1. VCL’s Payment Notice was not a valid payment notice as it had been served late.
2. Gypcraft was entitled to payment of the sum claimed together with interest.
3. The outstanding sum as the notified sum for Application 23.

VCL did not pay and instead brought court proceedings under Part 8 of the Civil Procedure Rules, seeking declarations regarding the proper construction of the payment mechanisms under the Subcontract.

VCL argued that the document late Payment Notice was, in fact, a valid Pay Less Notice in accordance with clause 4.7.5 of the Subcontract.

Judgment:

The judge rejected VCL’s submission, describing it as ‘ambitious’.

The Payment Notice was sent via email with the subject line of the email referencing “PN23” in two places. The body of the email referred to the provision of a “Payment Notice”, the document attached to the email was headed “Payment Notice”, and its contents referred to it as a payment notice.

The judge concluded there was no doubt that the document was a payment notice. Any alternative reading would not only be “artificial” but would undermine both the Housing Grants, Construction and Regeneration Act 1996 (“the Construction Act”) and the Subcontract.

The judge held that a document clearly intended to be and labelled as a payment notice cannot retrospectively be re-characterised as a pay less notice.

Takeaway points:

This judgment expressly confirms that a document called a payment notice cannot take effect as a pay less notice.

In addition to ensuring that notices are served on time, parties must ensure that such notices are correctly labelled. If a party is out of time to serve a payment notice, rather than serving a late payment notice they should consider serving a pay less notice, if the deadline for a pay less notice has not yet passed.

2. Part 8 proceedings and adjudications – What are they and when can they be useful?

The procedure under part 8 (“Part 8“) of the Civil Procedure Rules (“CPR”), is an alternative procedure for court claims. Parties may consider using Part 8 when the claim made does not involve a substantial dispute of fact [1]. Part 8 is a simpler and swifter mechanism for the disposal of claims when compared to the court process under Part 7 of the CPR.

It is becoming more and more common to see Part 8 being used by parties to an adjudication to seek to avoid the adjudicator’s decision being binding upon them. However, it can only be used in specific circumstances, as discussed below.

When Part 8 may be used

The starting point to consider is whether there is a substantial dispute of fact. If parties choose to commence proceedings under Part 8 and the court considers that the claim does contain a substantial dispute of fact, then the court may transfer the claim to the Part 7 procedure. By way of example:

• In Berkley Homes (South East London) Limited and another v John Sisk and Son Limited [2] it was held that Part 8 was not suitable. The parties disputed who was liable for the alleged omissions and errors on a design on a project that involved the construction of three bridges over the Jubilee Line and Docklands Light Railway and a new station entrance at Twelve Trees Park, London. The court held that the parties’ cases needed to be more fully pleaded, the contracts in question were lengthy and technical and the circumstances under which the design was developed was hotly contested between the parties.
• In ISG Retail Ltd v FK Construction Ltd [3], the court concluded that there was likely to be substantial disputes of fact on whether there had been a breach of contract, waiver or estoppel. As the arguments on waiver and estoppel were likely to involve disputes of fact it was held that Part 8 would not be suitable.
• In ISG Construction Ltd v English Architectural Glazing Ltd [4], the dispute involved a mixture of issues of law and fact and therefore was not suitable to Part 8.

Part 8 proceedings and adjudication

Part 8 proceedings are particularly popular when a party seeks to avoid an adjudicator’s decision being binding however but they can also be utilised prior to and during the adjudication process itself.

However, the overriding principle remains that the dispute must not contain a substantial dispute of fact and the TCC Guide has made it clear that parties should not label the dispute “adjudication application” in an attempt to obtain an expediated hearing under Part 8 where there is no other justification for an expediated hearing.

Merit Holdings Ltd v Michael J Lonsdale Ltd [5] helpfully summarised the relevant principles. In this case, a party to multiple adjudications sought declaratory relief under Part 8 on the proper method for valuing work carried out after a letter of intent had expired. The judge refused to grant any of the declarations sought and it was held that:

• The TCC Guide makes it clear that the court will act quickly in dealing with an application for declaratory relief where there was an issue going directly to the proper construction of an adjudication at its commencement. However, it should not be assumed that some relationship to an adjudication would automatically make the dispute appropriate for Part 8.
• The Part 8 procedure was to be used only where the claimant sought the court’s decision on a question that was unlikely to involve a substantial dispute of fact. The question should therefore be framed with some degree of precision and be capable of a precise answer.
• In this case, the court was not being asked to construe the written terms of the contract between the parties, but to determine the nature of their contractual relationship in order to establish a right to adjudicate. As such, this involved a dispute of fact and was not an appropriate use of the Part 8 procedure.

Part 8 claims prior to an adjudication commences

A Part 8 claim for declaratory relief may be sought before adjudication proceedings are commenced if a jurisdictional challenge is anticipated. For example, if the responding party claims that there is no construction contract or there is uncertainty over the terms of a contract.

Using Part 8 in this way is useful as it clarifies whether the parties have a right to adjudicate, it can resolve any uncertainty over jurisdictional issues before the adjudication starts and ultimately this means costs can be saved as parties will not commence adjudication proceedings only to have the adjudicator’s decision challenged in the courts at enforcement stage.

Part 8 claims during the adjudication

An advantage of obtaining a declaration during an adjudication is that the parties and the adjudicator will be bound by the court’s judgment. However, the courts will only interfere with an on-going adjudication in exceptional and rare cases and this is fact dependant.

Dorchester Hotel Ltd v Vivid Interiors Ltd [6] made clear that:

• The courts have the power to grant a declaration in respect of an ongoing adjudication;
• The courts have the power to grant a declaration if it considered that there had been or would be a breach of the rules of natural justice which would have a significant prejudicial effect;
• The courts will only interfere with an ongoing adjudication on natural justice grounds in an exceptional case. This is because it is difficult to prove that the adjudicator had had sufficient time to reach a fair decision, or that the adjudicator has not taken account of a defence until after the decision is delivered.

Furthermore the judge explained why the court would only interfere in exceptional circumstances:

“But I make it clear, as I hope I made clear in argument, that such a jurisdiction will be exercised very sparingly. It will only be appropriate in rare cases for the TCC to intervene in an ongoing adjudication. It is important that, wherever possible, the adjudication process is allowed to operate free from the intervention of the Court. Applications of this sort will be very much the exception rather than the rule. They will only be granted in clear-cut cases.”

Declaration sought after the adjudication

Finally, Part 8 proceedings may be appropriate following an adjudication. Examples of when a Part 8 may be used are as follows:

• To clarify a legal issue that arose in the adjudication;
• To challenge the validity of an adjudicator’s decision;
• To seek a declaration about the validity of payment, pay less and default notices (this often follows a smash and grab adjudication)

However, it is important to note that commencing Part 8 proceedings after an adjudication will not provide an excuse to delay payment of the sums awarded by an adjudicator.

Case law has also made it clear that there is a flawed assumption that the court will review or hear an appeal from the adjudicator’s decision [7]. Parties that disagree with an adjudicator’s decision are directed to comply with the relevant decision and commence Part 7 proceedings if there is an issue which requires final determination.

Takeaway points

The use of Part 8 for proceedings arising out of adjudication has grown more popular in recent years and it is clear that this procedure can provide an efficient method to resolve disputes. That said, it is important for parties to remember that just because a dispute involves an adjudication does not automatically make it appropriate to seek declaratory relief under Part 8. For a dispute to be decided upon using Part 8 there must not be a substantial dispute of fact, regardless of whether the dispute is or has been the subject of an adjudication.

[1] Michael J Lonsdale (Electrical) Ltd v Bresco Electrical Services Ltd (In Liquidation) [2018] EWHC 2043 (TCC)
[2] Berkeley Homes (South East London) Limited and another v John Sisk and Son Limited [2023] EWHC 2152 (TCC)
[3] ISG Construction Ltd v FK Construction Ltd EWHC 878 (TCC)
[4] ISG Construction Ltd v English Architectural Glazing Ltd [2019] EWHC 3482 (TCC)
[5] Merit Holdings Ltd v Michael J Lonsdale Ltd [2017] EWHC 2450 (TCC)
[6] Dorchester Hotel Ltd v Vivid Interiors Ltd [2009] EWHC 70 (TCC)
[7] TClarke Contracting Limited v Bell Build Limited [2024] EWHC 992 (TCC)

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