When a valid claim isn't a valid notice: understanding construction payment notices

Thirty years on from the introduction of the Housing Grants, Construction and Regeneration Act 1996 (the “Construction Act”), many of the issues giving rise to payment disputes remain remarkably familiar across the construction industry.

Previously, we looked at how defects in the payment machinery itself can have significant consequences.

This time, the focus shifts from the payment machinery to the notices operating within it.

Many of the disputes about the content of notices follow a familiar pattern. One party argues that the notice clearly communicated what was being claimed and why. The other points to a contractual requirement that has not been complied with. The resulting dispute often has less to do with the value of the works than the validity of the notice itself.

Recent TCC decisions demonstrate that neither side can afford to be complacent. The courts remain willing to adopt a practical and commercial approach when assessing notices, but they have shown little appetite for excusing failures to comply with contractual requirements simply because the recipient understood what was being claimed.

Two recent decisions, Netomnia Ltd v MJ Quinn Integrated Services Ltd and 1st Formations Ltd v Lapp Industries Ltd, illustrate both sides of that line.

The purpose of a payment notice

The statutory payment regime is intended to promote cash flow and avoid disputes about what has been claimed and when.

Sections 110A and 110B of the Construction Act require parties to identify the sum considered due and the basis upon which that sum has been calculated. Over time, the courts have repeatedly emphasised that the purpose of a payment notice is a practical one. It exists to communicate a claim, not to create opportunities for technical ambushes.

That explains why the authorities consistently adopt a commercial approach when interpreting notices.

The courts are generally reluctant to invalidate notices because of immaterial errors, infelicitous wording or technical arguments divorced from commercial reality. Equally, however, they have repeatedly made clear that contractual requirements remain relevant.

Recent cases demonstrate that whilst the courts are willing to look at substance over form, they still expect parties to comply with the contractual framework they have agreed.

What happened in Netomnia?

In Netomnia Ltd v MJ Quinn Integrated Services Ltd, the contractor sought to rely upon its application as a valid default payment notice under section 110B(4) of the Construction Act.

The contract contained additional requirements governing the submission of payment applications. These included the inclusion of a purchase order reference and certain identification features used by the employer's systems.

Those requirements had not been complied with.

The contractor argued that the application nevertheless achieved the statutory purpose of a payment notice because it identified the sum being claimed and the basis of the claim. The employer plainly understood what was being sought.

The court disagreed.

It held that the contractual requirements were objectively reasonable and formed part of the agreed payment procedure. Because those requirements had not been satisfied, the application was not a valid payment notice.

The decision is significant because it demonstrates that compliance with the Construction Act is not the only question.

The fact that a document identifies the sum claimed and communicates the basis of the claim does not necessarily mean that it constitutes a valid notice. If parties have agreed reasonable requirements governing how applications must be submitted, the courts are likely to require those requirements to be followed.

Why did it matter?

The lesson is straightforward: a payment notice must comply with the contract as well as the statute.

That is particularly important on large projects where purchase order references, contract references, project numbers and similar requirements are frequently used to ensure applications can move through accounting and project control systems efficiently.

What happened in 1st Formations?

At first glance, 1st Formations Ltd v Lapp Industries Ltd appears to point in the opposite direction.

The dispute concerned an interim application for payment under the Scheme. The contractor described the amount sought as a "payment requested on account". The employer argued that the document was insufficiently clear to amount to a valid interim application for payment.

The court rejected that argument.

Looking at the document as a whole, it concluded that the contractor was plainly making an application for interim payment. The works had been valued, the sum sought had been identified and the basis of the claim had been explained.

The fact that the application used language that might not ordinarily be chosen by a construction lawyer did not alter its substance.

In reaching that conclusion, the court reiterated its established approach to notices. The document should be considered in a practical and commercial way, not through what the authorities have described as "nice points of textual analysis".

The court was unwilling to invalidate the notice merely because it could have been drafted more clearly.

What do the cases tell us?

Read together, the decisions demonstrate a relatively clear and consistent approach.

The courts do not favour technical ambushes. If a notice makes tolerably clear what is being claimed and why, they are unlikely to invalidate it on artificial grounds.

Equally, the courts will not disregard contractual requirements simply because the underlying claim is obvious.

That is why Netomnia and 1st Formations are not contradictory decisions.

In Netomnia, the problem was not one of drafting style or interpretation. The issue was a failure to comply with objectively reasonable contractual requirements governing the submission of the notice.

In 1st Formations, by contrast, the court was prepared to overlook imperfect terminology because the substance of the application was sufficiently clear.

Put another way, the courts are prepared to adopt a common-sense approach to the contents of a notice, but they still expect parties to comply with the rules they have agreed.

Lessons for drafting and administration

Three practical points emerge.

1. Follow the contract
The starting point should always be the contractual requirements governing notices and applications.

Before serving a notice, parties should check whether the contract requires specific templates, references, supporting information, project identifiers or other administrative details.

Those requirements can be just as important as the statutory requirements.

2. Focus on clarity
The recipient should be able to identify:

•    the sum being claimed;
•    the basis upon which it has been calculated; and
•    the purpose of the document.

If those matters are tolerably clear, the courts are unlikely to favour technical objections based solely on form.

3. Do not rely on the court to rescue a defective notice
Whilst 1st Formations demonstrates the courts' practical approach, parties should not assume an ambiguously drafted or procedurally defective notice will be rescued through litigation.

The safer course remains to ensure that notices are both clear and compliant.

Final thoughts

The decisions in Netomnia and 1st Formations are not difficult to reconcile. Both reflect the courts' long-established approach to payment notices: substance matters, but so does compliance with the agreed contractual process.

Thirty years since the Construction Act, that remains a familiar theme. Parties often focus on whether the recipient understood what was being claimed. These decisions are a reminder that the real question is whether the notice achieves its statutory purpose whilst complying with the contractual machinery the parties have chosen to adopt.

In Netomnia, the claim itself was not the problem. The problem was the failure to comply with the contractual requirements governing its submission. In 1st Formations, the court was prepared to look beyond imperfect language because the substance of the application was sufficiently clear.

The courts continue to adopt a practical and commercial approach to payment notices. However, they remain reluctant to excuse failures to comply with reasonable contractual requirements.

In short, a valid payment claim will not always amount to a valid payment notice.

This topic will be explored in more detail at our in-person seminar on the financial and commercial risks in construction, taking place in Edinburgh on Thursday 19 November 2026. To RSVP, please register here.

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