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Construction Disputes: Is your Pay Less Notice valid?

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Construction Disputes: Is your Pay Less Notice valid?

The Technology and Construction Court considered the validity of an Interim Payment Notice and Pay Less Notice in the case of Surrey and Sussex Healthcare NHS Trust v Logan Construction [2017] [EWHC 17(TCC)]. The service of a Pay Less Notice is well trodden ground but what constitutes a valid Payment or Pay Less Notice has been less clear until this decision.

The facts of the case were that the Claimant, Surrey and Sussex Healthcare NHS Trust, engaged the Defendant contractor, Logan Construction, to refurbish and undertake further works at East Surrey Hospital.

The JCT Intermediate Contract with Contractors Design 2011 applied and on 25 August 2015, practical completion of the works was certified.

Despite the contract permitting Logan to submit Interim Payment Notices, no applications had been submitted.  Further, the Trust had failed to issue an Interim Certificate. On 26 August 2015, the Certificate of Making Good was issued.  This triggered the period for the issue of the Final Certificate and a final account meeting was arranged for 21 September 2015.  The Claimant failed to issue an Interim Certificate on time and the Defendant, on 20 September 2016, emailed a number of attachments to the Claimant which included a spreadsheet containing a work sheet entitled “Interim Payment Notice (Clause 4.10)”.  The document indicated that the Defendant considered there to be over £1,000,000.00 still due to it.

The Claimant issued a Final Certificate indicating that the Defendant was out of time for serving an Interim Payment Notice.  The Final Certificate showed that the balance due to the Defendant was just over £14,000.00.

At adjudication, the Adjudicator was asked to consider whether the Defendant's Interim Payment Notice was validly served on 20 September 2016 and, if so, whether a valid Pay Less Notice had been served by the Claimant.  The Adjudicator found for Logan Construction on the basis that the Interim Payment Notice of 20 September 2016 was valid and that no Pay Less Notice was issued by 24 September 2016.  The Defendant was therefore ordered to pay over £1,000,000.00.

The Claimant responded by issuing Part 8 proceedings.  Those proceedings sought two declarations which were:-

  1. That the Defendant had not issued a valid Interim Payment Notice;
  2. That the email and attachments that the Claimant sent on 21 September 2016 constituted a valid Pay Less Notice, which was served in time.

The TCC took into account that as the consequences of a failure to serve Pay Less Notice were so severe, it was important that the Defendant was “open and transparent about its intention”.  The TCC decided that both the Interim Payment Notice and the Pay Less Notice were valid.

When giving consideration to the Interim Payment Notice, it found that the spreadsheet served by the Defendant was free from ambiguity and clear as was its substance, form and intent.  It was acknowledged that whilst the covering email did not specifically refer to the Notice being attached, the surrounding circumstances would lead an objective review of the facts that the Defendant was entitled to serve Notice as a result of the contract administrator’s failure to issue an Interim Certificate.  Had the Claimant issued an Interim Certificate after the Certificate of Making Good as contractually required, this position would not have arisen.

Further, the Court considered that the intention of the Claimant in serving its email and attachments was clear to a reasonable recipient and that as a result it held that a valid Pay Less Notice was served.  It was not therefore necessary for the Claimant to expressly state that the email was a Pay Less Notice nor indeed make reference to the contract dealing with this aspect.
The case serves as a reminder that clarity in content and purpose remains vital when addressing all stages of the payment process.  Whilst the Court will look carefully at the intent of the communication, the circumstances surrounding email communication and the service of Notices, the uncertainty generated by a failure to utilise the contractual terms set out in all construction projects can be avoided by clear communication.