Those familiar with the payment notice regime under the Construction Act will know that the Act requires a Payless Notice to state “the basis upon which a sum is calculated”. A recent Scottish decision has provided further guidance on what this means in practice (Muir Construction Ltd v. Kapital Residential Ltd).

Muir had submitted an application for payment of the outstanding retention it considered due under its contract. The Employer, Kapital, issued a purported Payless Notice which simply stated “We consider that the sum that is due on the date this notice is given is: Zero (£0.00)” but no further information was provided as to how this sum was calculated. Instead Kapital had merely appended a snagging list together with an independent report.

In its submissions to the court Kapital argued that the number and value of alleged snagging was far in excess of the amount of retention withheld. In the context of the appended snagging list and report, Kapital argued, a reasonable recipient would have understood this and accordingly the basis for the zero sum was clear in the circumstances.

The court gave this argument short shrift, holding Kapital’s Payless Notice to be invalid. Lord Bannatyne did not consider that a reasonable recipient of Kapital’s Payless Notice could understand the basis upon which the zero sum was calculated.

In his reasoning Lord Bannatyne gave helpful guidance on the basis of calculation required for a Payless Notice to be valid, stating the Payless Notice must:

  • set out the grounds for paying less;
  • show the sum applied to each of these grounds; and
  • give an indication of how each of these sums were arrived at.

Because an invalid Payless Notice has the effect of exposing an Employer to a risk of having to pay a Contractor the full amount applied for, the timing and content of Payless Notices have for some time proved fertile ground for the so-called ‘Smash and Grab’ adjudications. This decision therefore provides welcome clarity for both Employers and Contractors alike as to the requirements for a Payless Notice to be valid.