C Spencer Ltd v MW High Tech Projects UK Ltd

In a hybrid construction contract, the parties may agree one payment regime covering both construction and non-construction operations. A payment notice need not separately identify the sum attributable to construction operations where the contractual regime mirrors the statutory payment machinery for all the works. It is sufficient that the notice clearly states the overall sum considered due and the basis of calculation.

Separate identification is necessary where different statutory and contractual schemes apply, because the notified sum under Housing Grants, Construction and Regeneration Act 1996 must then be identifiable. A payment notice must be sufficiently clear and unambiguous in form, substance and intent. A certificate intended only as a payment notice cannot later be relied upon as a pay less notice or set-off notice.

The claimant subcontractor brought a Part 8 claim for £2,683,617.09 plus VAT, contending that the defendant’s payment notice was invalid under sections 110A and 111 of the Housing Grants, Construction and Regeneration Act 1996. The subcontract covered both construction operations and excluded operations connected with a power-generation facility.

The claimant’s application separated the two categories of work. The defendant’s payment certificate stated a single negative valuation and did not allocate sums between them. The central issue was whether the hybrid nature of the contract required the payment notice to identify separately the sum due for construction operations.

1. Claim dismissed. The defendant’s payment notice was valid and defeated the claimant’s claim for the notified sum.
2. Section 104(5) of the Housing Grants, Construction and Regeneration Act 1996 limits the statutory regime to construction operations. It does not prevent the parties from agreeing that non-construction operations will be subject to the same payment machinery.
3. Where a hybrid contract contains one payment regime which complies with, or mirrors, the statutory regime for both categories of work, a payment notice need not separately state the sums attributable to construction operations. Sections 110A and 111 require the sum considered due and the basis on which it is calculated, but do not expressly require separate allocation.
4. Separate allocation would be required where different payment or adjudication schemes apply to the two categories of work. The authorities concerning such separate schemes did not establish a rule preventing a unified regime.
5. Each notice must be construed against the relevant contractual and statutory background. It must be sufficiently clear and unambiguous to give proper notice of the sum assessed as due and the basis of calculation. A global assessment may fail if the absence of allocation undermines its validity, but no such deficiency arose here.
6. The payment notice stated the sum considered due and the basis of calculation. It was not intended to operate as a pay less notice, so it could not be relied upon in that capacity. Nor could a set-off or cross-claim avoid the payment regime without being raised in a valid notice.
7. For completeness, the claimant was not estopped from advancing its construction argument. Any earlier common assumption had ended when the hybrid nature of the subcontract and the need for allocation were raised. The Part 8 procedure was suitable because the issues were principally matters of construction and documentary evidence.