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What is in a name? Does a Pay Less Notice need to be called a Pay Less Notice?

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21/04/2017

Surrey and Sussex Healthcare NHS Trust v Logan Construction (South East) Limited [2017] EWHC 17 (TCC)

The Housing Grants Construction & Regeneration Act 1996 (“the Construction Act“), contains stringent requirements regarding the timing and form of Payment Notices and Pay Less Notices. In this case, the TCC has clarified that it is the substantive content of a Pay Less Notice which will determine whether or not it is in a valid form. The title given to the document (for example calling it a Final Certificate) does not prevent it from taking effect as a valid Pay Less Notice.

The Facts

Surrey and Sussex NHS Trust (“the Trust“) engaged Logan Construction (South East) Limited (“Logan“) under a JCT Intermediate Building Contract with contractor’s design (2011) Edition (“the Contract“) to carry out refurbishment works to East Surrey hospital.

Practical completion of the works was certified on 25 August 2015. In the months following practical completion Logan did not make any applications for interim payment, but the Contract Administrator issued Interim Certificates every 2 months as required by the Contract.

On 25 May 2016, the Contract Quantity Surveyor issued his calculation of the adjusted Contract Sum for the final account. Final account discussions then took place between the Contract Quantity Surveyor and Logan’s quantity surveyor.

On 24 August 2016 the rectification period for defects ended and the Certificate of Making Good Defects was issued. This had 2 consequences under the Contract:

  • the end of the rectification period triggered an interim payment cycle. Either Logan could have applied for an interim payment no later than 7 days before the end of the rectification period, or the Contract Administrator should have issued an Interim Certificate for an interim payment on 24 August 2016. Neither of these things happened and
  • the Contract provided that the Final Certificate be issued under the Contract within 28 days of the latest of:
    • the end of the rectification period
    • the date of issue of the Certificate of Making Good Defects or
    • the date the Contract Quantity Surveyor sent the statement containing the adjusted Contract Sum (as set out above, this occurred on 25 May 2016).

As 24 August 2016 was both the end of the rectification period and the date of issue of the Certificate of Making Good Defects and was after event c above, the deadline for the Final Certificate was 21 September 2016.

A final account meeting was arranged between the quantity surveyors for 21 September 2016. Just before midnight on 20 September 2016 Logan’s quantity surveyor sent an email to the Contract Quantity Surveyor which included a number of attachments, one of which was called “Interim Payment Notice”.

No agreement was reached at the meeting of 21 September, and later that same day the Contract Quantity Surveyor issued the final certificate to the Trust, copying in Logan. In his covering email, the Contract Quantity Surveyor said as follows:

“Please note that on 20 September 2016 I received an Interim Payment Notice dated 24 August 2016 from Logan Construction. The last due date for an Interim Payment Notice under Clause 4.7.1.4 of the Building Contract was 24 August and as such the application issued by Logan Construction yesterday is out of date and void. In any event, the details stated in the Final Certificate are the same as would have been stated in any final Interim Certificate which may have been issued.”

 It was common ground between the parties that if Logan’s Interim Payment Notice of 20 September 2016 had been valid, the deadline for service of a Pay Less Notice was 24 September 2016.

Logan’s quantity surveyor acknowledged receipt of the final certificate on 23 September 2016 and on 28 September 2016 he emailed the Contract Quantity Surveyor stating that the Interim Payment Notice was in time and was valid. He noted that no Pay Less Notice had been issued by 24 September 2016 and for that reason Logan was due the full amount applied for in the Interim Payment Notice.

Logan issued adjudication on 19 October 2016 claiming payment of the sums set out in the Interim Payment Notice. The adjudicator agreed with Logan and ordered that the Trust make payment of the sum applied for.

In anticipation of the adjudicator finding in Logan’s favour, the Trust issued a Part 8 claim in the TCC seeking the following declarations:

  • that the attachment to the email from Logan’s quantity surveyor of 20 September 2016 was not a valid Interim Payment Notice and
  • that the email from the Contract Quantity Surveyor of 21 September 2016 which enclosed the final certificate constituted a valid Pay Less Notice.

The Interim Payment Notice

The TCC confirmed that there is a high threshold to be met by any contractor who seeks to take advantage of the “no notice” provisions in the Construction Act whereby a sum automatically becomes payable if an employer’s notice is not served in time.  The document relied upon as a notice must be construed against both the contractual and factual setting in which it was issued.

The TCC considered it important that the Contract Administrator was in breach of the Contract by failing to issue an Interim Certificate on 24 August 2016. The final account process did not overtake the need for the interim payment regime to continue.

Logan’s Interim Payment Notice was clear and free from ambiguity. It was clearly entitled ‘Interim Payment Notice’ and it set out a detailed calculation of how the sum applied for by Logan had been calculated. As such, the Interim Payment Notice was valid.

The Pay Less Notice

The TCC considered that it did not matter that the Final Certificate had not been sent directly to Logan (Logan had only been copied into the email). The court considered it was obviously intended that, by the email, Logan should be the direct recipient of its contents.

The court said that to constitute a valid Pay Less Notice, the notification had to specify the sum which the Trust considered to be due to Logan at the date of the notice and the basis upon which that sum had been calculated. Here the Final Certificate satisfied this requirement. It clearly set out both the sum due and how it had been calculated.

It is not necessary for a Pay Less Notice to have that title or to make specific reference to the relevant contractual clause in order to be valid. The question is whether, viewed objectively, the notice had the requisite intention to fulfil that function. In this case, the email sending the Final Certificate said that, if the Interim Payment Notice was valid, the Final Certificate reflected everything that the Trust wanted to say in response to it.

As such, the Final Certificate was a valid Pay Less Notice and Logan was not entitled to any further payment over and above the sum set out in the Final Certificate.

Comment

This case confirms the importance of ensuring that notices and applications regarding payment are clear, unambiguous, and comply with the requirements of the contract.

A party expecting to receive payment under a construction contract should take note that any documents/correspondence received from the paying party setting out their view of the sum due, together with a breakdown of that sum, may take effect as a valid Pay Less Notice, even if the document/correspondence does not say on the face of it that it is intended to be a Pay less Notice.

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