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

Judgment date: 13 January 2017

Summary

Building on previous decisions, the case concerns the requirements applicable to payment applications, payment notices and pay less notices.

The Court’s comments in relation to pay less notices provide helpful confirmation that contingent notices can be given and that the words “pay less notice” need not be used or the relevant contractual clauses referred to. Rather, a key ingredient for showing the necessary intention to give such a notice is whether the notice is responsive to the payment application or payment notice in question.

Technology and Construction Court, MR Alexander Nissen QC (sitting as a Deputy High Court Judge)

Background

Logan Construction (South East) Limited (the defendant contractor) entered into a construction contract with Surrey and Sussex Healthcare NHS Trust (the claimant employer) on the terms of the JCT Intermediate 2011 form for refurbishment works at East Surrey Hospital.

After practical completion was achieved, the defendant did not make any further interim payment applications, but the claimant continued to issue Interim Certificates every two months in accordance with the standard JCT payment provisions.

After the Certificate of Making Good was issued, the parties entered into final account discussions. The contract provided for a further interim payment at this stage, but the defendant did not submit an application nor did the claimant issue an Interim Certificate. As a result, the contract entitled the defendant to submit its own payment notice in the absence of an Interim Certificate from the claimant.

Final account discussions continued and a meeting was to be held on the due date for service of the claimant’s Final Certificate (21 September 2016). Late in the evening of 20 September 2016, the defendant emailed a spreadsheet to the claimant containing a worksheet entitled “Interim Payment Notice (Clause 4.10)”, which the defendant subsequently alleged to be a valid payment notice under the contract. The defendant’s covering email made no reference to the spreadsheet being a payment notice and the claimant presumed that the spreadsheet was simply to inform discussions at the meeting the following day.

No agreement was reached at the meeting and on the same day the claimant proceeded to issue a Final Certificate in an amount £1.1 million less than the defendant’s Interim Payment Notice. By this time the claimant had appreciated the significance of the defendant’s Interim Payment Notice, but mistakenly believed it to be a late payment application.

The covering email to the claimant’s Final Certificate alleged that the notice was “out of date and void”, but went on to say that “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.”

At adjudication, the defendant successfully argued that the claimant’s Final Certificate and covering email was not a valid pay less notice and was awarded the outstanding amount of its Interim Payment Notice. The claimant issued Part 8 proceedings, asking the TCC to declare that the defendant’s Interim Payment Notice was invalid and that it had issued a valid pay less notice.

Issues

The claimant sought two declarations:

1. That the attachment to the email from Mr Crook on 20 September 2016 was not issued a valid Interim Payment Notice.
2. That the email and attachments dated 21 September 2016 constituted a valid Pay Less Notice.

Decision

Payment notice

The Court noted a number of recent TCC decisions which had set a high standard for the submission of payment applications by contractors. Most recently, in Jawaby Property Investment v The Interiors Group [2016] BLR 328, the Court had noted [para 59] that: “If a contractor wishes to have the benefit of the interim payment regime such as that contained in the Contract, then its application for interim payment must be in substance, form and intent an interim application stating the sum considered by the contractor as due at the relevant due date and it must be free from ambiguity.” In concluding that the defendant had satisfied these requirements the Court noted the following matters:

• It was important to consider the contractual and factual background to the payment notice objectively, assessing it against how it would have informed a reasonable recipient.
• While the covering email did not specifically refer to the notice, the notice itself was sufficiently clear and free from ambiguity on its face, in terms of legibility, substance, form and intent.
• Despite the lack of reference to the notice in the covering email, the defendant had been open and transparent about its intentions.
• It was also relevant that the dispute would not have arisen had the claimant issued an Interim Certificate after the Certificate of Making Good as it was contractually required to do.

The Court therefore held that the defendant would have been entitled to the sum set out in the payment notice unless the claimant had issued a valid pay less notice.

Pay less notice

The decision in Jawaby was also relevant to the claimant’s claim to have submitted a valid pay less notice. In Jawaby, a potential pay less notice was found to be invalid on the basis that the Employer had not intended to give such a notice: “an essential requirement for the service of a contractual notice [is] that the sender has the requisite intention to serve it”[para 63].

In the present case, the Court upheld the claimant’s Final Certificate and covering email as amounting to a pay less notice:

• The contractual requirements for a pay less notice, specifying the sum due and the basis of the calculation, had been fulfilled.
• The fact that the claimant had been mistaken as to the payment procedure under the contract and had referred to what it would have certified in an Interim Certificate rather than a pay less notice, did not prevent it from having the required intention to issue a pay less notice. The reasonable reader would have been aware that the claimant was mistaken and the overriding impression from the claimant’s email was that it intended its Final Certificate to be responsive to the defendant’s Interim Payment Notice.
• It was not necessary for the claimant to state expressly that it was giving a pay less notice or to make specific reference to the relevant contractual clause dealing with pay less notices.
• A pay less notice could be validly given despite the contingent nature of the claimant’s email (i.e. it being made subject to the validity of the defendant’s Interim Payment Notice which the claimant had denied).

Click here for the full judgment.