Payment notices – some clarity at last?

Being crystal clear, unambiguous and direct when it comes to Interim Payment and Pay Less notices could avoid expensive arguments in the Technology and Construction Court.

That is the message coming out loud and clear after the recent case of Surrey and Sussex Healthcare NHS Trust v Logan Construction (South East) Ltd.

The Court held that both the Interim Payment Notice and the subsequent Pay Less Notice were valid and provided guidance on what constitutes a Pay Less Notice, even when it doesn't describe itself as one, overturning an adjudicator's previous decision that the notice was not actually a Pay Less Notice in the process.

Background to the dispute

The dispute -as to whether the Interim Payment Notice and subsequent Pay Less Notice were valid - arose out of a building contract based on the JCT Intermediate (with Contractors Design) for major £4 million-plus refurbishment work at East Surrey Hospital.

Towards the end of the works, Logan prepared an Interim Payment Notice and sent this as an attachment to an email to the Trust describing itself as an 'Interim Payment Notice (Clause 4.10)'.

The dispute as to its validity centred on the fact that the covering email did not mention the Interim Payment Notice attached and instead focused on a final account meeting to be held the next day.

The Trust claimed that it considered the Interim Payment Notice as a document in support of Logan's position on the final account and therefore not valid.

At the same time, the validity of the Pay Less Notice was also at the heart of the issue. The Trust relied on an email sent following the Final Account meeting attached to which were two documents, a Payment Certificate and Contract Sum Adjustment.

As well as wording to the effect that the Interim Payment Notice was not valid, there was no mention of a Pay less Notice so Logan argued the two documents could not constitute a Pay Less Notice if the Trust did not consider there to be an Interim Payment Notice to pay less against.

Implications

Before this case, the Court took a rigid approach to the validity of payment notices particularly in relation to the requirement for clarity and unambiguity but in Surrey and Sussex v Logan, it relaxed its view and looked around the payment provisions in the contract to the parties' intentions.

So, in relation to the Interim Payment Notice, the judge found that - given the express description of the declaration being 'Interim Payment Notice (Clause 4.10)' - a reasonable person receiving it would understand it to be an Interim Payment Notice even though it wasn't mentioned directly in the covering email.

When it came to the Pay Less Notice, even though the Trust did not ever actually serve a notice with that name, it did send by email a Payment Certificate and Contract Sum Adjustment and the Judge found that these two documents had in fact met the requirements for a Pay Less Notice.

The way forward

Despite this interpretation, to avoid arguments, the best advice remains to be crystal clear and make sure any Pay Less Notice proclaims itself as just that. In fact, make sure all payment notices are clearly titled and if attached to an email, make reference to it in the body of the email.

• Wards Solicitors' James Murray is a specialist in this area of the law and worked on a similar dispute last year. For more information, or help in relation to any construction and engineering disputes, please contact him directly.