A contractor claimed that a pay less notice was invalid because the “purported” payment notice and calculation were not attached to it. The calculation was set out in a separate document. Was the contractor right?

The case law shows that a pay less notice will be construed by reference to its background, to see how a reasonable recipient would have understood it. The court will be unimpressed by nice points of textual analysis, or arguments which seek to condemn the notice on an artificial or contrived basis. A way to test whether the contents of the notice are adequate is to see if the notice provides an adequate agenda for a dispute about valuation and/or any cross-claims available to the employer.

The court also considered that the courts should not generally adopt a different approach to the construction of an employer’s pay less notice and a contractor’s interim application or payment notice. The particularly adverse consequences for an employer from, say, a contractor’s unanswered application/ payment notice are, however, relevant to the test of the reasonable recipient. Would that recipient have realised that the document in question was an application or payment notice, with contractual force, and with all the potential consequences? An interim application must be obviously identifiable as such and, in the court’s view, a payment notice or a pay less notice must make plain what it is and clearly set out the sum which is said to be due and/or to be deducted, and the basis on which that sum is calculated. Beyond that, the question of its validity under the contract is a matter of fact and degree.

There can be no possible objection, in principle, to a payment or pay less notice referring to a detailed calculation set out in another, clearly identified, document. That is how these things are commonly done and is an uncontroversial feature of a number of reported cases. There was at the time no suggestion that the contractor did not know precisely what was being referred to in the pay less notice, which was valid.

See: Grove Developments Ltd v S&T (UK) Ltd [2018] EWHC 123