Making things tolerably clear: Court of Appeal judgment in RBH v James

The Court of Appeal has this morning handed down judgment in the appeal of RBH Building Contractors Limited v. Ashley and Tracy James [2026] EWCA Civ 511. The judgment can be accessed here.

Dismissing the contractor’s appeal, the Court of Appeal made interesting and (at appellate level) novel comments concerning two important features of the Construction Act: the ‘residential occupier exception’ (which provides that the Act does not apply to works on an individual’s own residence) and the requirements of pay less notices.

As noted at the end of this article, we will be running a webinar alongside James Frampton of Keating Chambers discussing this case and its practical implications at 9am on Wednesday 13 May. To register your free place, please click here.

Background

RBH is a building contractor who Mr and Mrs James employed to provide site and project management services in relation to a large luxury house known as Ferndown in Saunton, North Devon. A contract was agreed orally, through which RBH was to be paid a fee for supervision / project management, and reimbursed costs.

The works proceeded but RBH stopped working around April 2024, up to which point it had been paid c.£1.3m. In November 2024 an application for payment was made claiming a further £663k, in response to which (and following legal advice) Mr and Mrs James issued a “Notice of intention to withhold payment“. That document stated that “We intend to withhold payment of £663,016.16 and accordingly intend to make payment of £0“, and went on to list eleven bullet points as the “reasons for withholding the sums claimed“. Some of those bullet points had sums next to them, some did not, and none added up to the £663,016.16 mentioned in the notice.

RBH then proceeded with an adjudication on the basis that the ‘withholding notice’ was an invalid pay less notice. In response, Mr and Mrs James argued (for the first time) that the Construction Act did not apply to them because they were ‘residential occupiers’ excluded by section 106 of the Act, and as such the adjudicator had no jurisdiction. The adjudicator rejected that argument, finding that Mrs and Mrs James were not residential occupiers and therefore he had jurisdiction.

Mr and Mrs James also argued that their ‘withholding notice’ was a valid pay less notice, but again the adjudicator disagreed. As such, he awarded RBH the sum of £663,016.16 plus interest, and required that Mr and Mrs James pay all his fees of nearly £10k plus VAT. Mr and Mrs James did not pay, which led to enforcement proceedings, and they also sought declarations about the validity of their ‘withholding notice’.

The residential occupier question

Section 106(1)(a) of the Construction Act states that the relevant parts of the Act do not apply “to a construction contract with a residential occupier“, which is then defined in section 106(2) as “a construction contract which principally relates to operations on a dwelling which one of the parties to the contract occupies or intends to occupy as his residence…“.

Mr and Mrs James argued that they had intended to occupy Ferndown as their residence at the time the contract with RBH was made, while renting out the property ‘Airbnb style’ for roughly 25% of the year. While they acknowledged that due to financing issues that was no longer the case, they said this did not change the fact that the ‘residential occupier exception’ was engaged at the start of the contract.

Both parties put forward various pieces of conflicting evidence as to Mr and Mrs James’ intentions. Mr and Mrs James cited evidence such as the fact they had paid additional stamp duty on the purchase of the property and that they had lived in a caravan in the garden during the construction. In contrast, RBH noted the admitted intention to rent out the property for at least some of the time together with relying on a series of contemporaneous development loans. RBH noted that these contained undertakings signed by Mrs James on repeated occasions both before and after the RBH contract was entered into including that “We declare, confirm and certify that neither myself, ourselves or any of my/our family or close relatives nor my/our partners reside nor have any intention to reside at the property” and “I am entering this agreement wholly or predominantly for the purposes of a business carried on by me or intended to be carried on by me“. RBH noted that those express undertakings were plainly at odds with Mr and Mrs James’s position now that they had intended to reside in the property.

At first instance, the TCC found that the residential occupier exception might be engaged and therefore declined to grant summary judgment. The court acknowledged the loan documentation and undertakings “require explanation and very clearly raise the possibility that the house was being constructed as a development for onward sale“, but that it was “part of the picture and has to be set against the James’ own evidence“. Because adjudication enforcement is typically done by way of summary judgment, the court said it could not determine that issue summarily (it would require witness evidence to be tested), and therefore the court declined to immediately enforce the decision.

The Court of Appeal, considering the residential occupier exception for the first time, considered the (limited) authority that existed and set out the following principles for future use:

• The burden of proof must always be on the party seeking to trigger the statutory exception.
• The determination of the necessary intention to occupy is a matter of fact which may be capable of being determined on a summary basis because the threshold is not high, but if there is credible evidence both ways, it may not be.
• The fact that the issue arises in the context of adjudication enforcement makes no difference: there is no overriding presumption in favour of enforcement if it is realistically arguable that the adjudicator did not have the necessary jurisdiction.
• The determination must be made as to the existence (or otherwise) of the intention to occupy at the time that the contract was made.
• There are two elements to the test: first, whether there is a bona fide intention to occupy in the future (largely a matter of subjective intent); and second, whether the person who wishes to occupy has a realistic, rather than a fanciful, prospect of bringing that occupation about.
• The intention to occupy, in order to trigger the exception, must have a temporal aspect: it must be within a reasonable time of completion of the property. For example, the court said it cannot be sufficient for an employer to intend to occupy the property after letting it out for 20 years.

Applying those principles, Lord Justice Coulson (giving the lead judgment of the Court of Appeal) agreed with the judge at first instance that there was sufficient doubt between the parties’ evidence that summary judgment was not appropriate. It determined that the undertakings in the development loans clearly pointed “in the other direction” from Mr and Mrs James’ evidence, but that they did not “as a matter of law or as a matter of fact…override or render nugatory all the other evidence“. It also stated that an intention to rent out the property ‘Airbnb style’ may mean that the residential occupier exception was not engaged, but that 25% was not enough: “an intention to rent out the property for more than half of the year may well fall on the wrong side of the line. But on the facts here, I am content to accept the judge’s reasoning that 25% did not cross that line“. As such, the question of whether the Mr and Mrs James were in fact residential occupiers will have to be determined in due course at a full trial.

The pay less notice question

As a reminder, section 111(4) of the Construction Act requires that a pay less notice must set out “(a) the sum that the payer considers to be due on the date the notice is served, and (b) the basis on which that sum is calculated“. Paragraph 71 of the Court of Appeal judgment sets out the content of the ‘withholding notice’ issued by Mr and Mrs James. The TCC decided that “how the bullet points in the letter related to the payment application would have been understood by any reasonably objective reader who had knowledge of the contract works, and I consider that those bullet points set an adequate agenda for an adjudication by identifying specifically which elements of the payment application were not accepted and, briefly, why they were not accepted”, and that “I do not accept that the letter had to set out an arithmetical calculation in order to amount to a valid payless notice“.

The question before the Court of Appeal was, in essence, whether this was right: the did ‘withholding notice’ satisfy the requirements of section 111? Lord Justice Coulson agreed with the TCC that it did, and in doing so considered various authorities to arrive at six principles, which can be summarised as follows:

1. What matters is not how the recipient of the notice in fact understood it; the question is how a reasonable recipient would have understood the notice.
2. The notice must be construed in context: the court must consider “the relevant objective contextual scene”. The reasonable recipient will be credited with knowledge of the relevant contract and if the notice in question is a payless notice, will be taken to know the detail of its own payment notice, to which the payless notice is a response.
3. A payment notice or a payless notice must comply with the contractual requirements or (if applicable) the statutory Scheme. It must clearly set out the sum that is due and/or the sum to be paid (even if it is £0), and the basis on which that sum is calculated. Beyond that, it is a question of fact and degree, but the court will be “unimpressed by textual analysis or arguments which seek to condemn the notice on an artificial or contrived basis”.
4. While there is no principled reason for adopting a different approach to the construction of different kinds of payment notices merely because some may give rise to more draconian consequences than others, “the particularly adverse consequents for an employer, that follow from, say, a contractor’s unanswered application/payment notice are relevant to the test of the reasonable recipient”.
5. There is no requirement for a valid notice to have a particular title, or to make specific reference to a relevant contract clause or term of the Scheme.
6. One way of testing whether the payless notice was a valid notice is to see whether “it provided an adequate agenda for adjudication as to the true value of the works”.

Lord Justice Coulson concluded as follows: “In summary, the content of payment notices and payless notices should be considered in a common-sense way. They should not be allowed to become tick box exercises, or traps for the unwary. In reality, the question is a simple one. Does the payment notice explain in a tolerably clear way what is due and why? Does the payless notice explain, also in a tolerably clear way, what (if any) part of the payment notice is said to be due, and why less is being paid than has been sought? It is tempting to regard everything else as lawyerly over-complication“.

The idea that a notice needs to explain what is due in a ‘tolerably clear’ manner was first set out in Sir Peter Coulson’s book, ‘Construction Adjudication’. The Court of Appeal now expressly endorses that language, and as such the question of whether a notice is ‘tolerably clear’ is likely to become the new summary test in interpreting the validity of payment documentation.

Conclusion

This is a relatively rare example of a Court of Appeal decision on adjudication enforcement matters, and so makes interesting reading.

It is also notable in that unlike in many adjudication enforcements, where the court is keen to enforce awards summarily, both the TCC and the Court of Appeal considered here that there was enough doubt to require a full trial. So while this is not an example of court positively finding that the residential occupier exception applies for the first time, it is the first time the court was satisfied there was enough doubt to refuse summary judgment. Ultimately, the Court of Appeal makes clear, however, that whether employers are ‘residential occupiers’ will be highly fact specific.

The comments on pay less notices are arguably of wider everyday relevance to the industry. There is only one previous Court of Appeal authority on payment and pay less notices – S&T (UK) Ltd v. Grove Developments Ltd [2018], in which the Court of Appeal said that reference to a second document for the ‘calculation’ part of a pay less notice was acceptable – and so the court’s comments here will no doubt be cited in many future adjudications. Arguably, they make it easier for parties serving questionable documents to satisfy the requirements for a valid pay less notice, which coupled with Lord Justice Coulson’s observation that “It is very important that payment notices and payless notices do not become some sort of technical battleground where one or other party seeks a potentially unfair advantage by relying on the short time periods applicable to payment and payless notices in order to recover sums (or to withhold sums) that could not be justified on a detailed analysis” may make ‘smash and grab’ adjudications that bit harder.