In Surrey and Sussex Healthcare NHS Trust v Logan, the court held that it was unnecessary for a pay less notice to have the title "pay less notice", or to refer to a specific contract clause to be valid.

In that case, in advance of a meeting to discuss the final account, the contractor sent an email to the contract QS with several attachments including one entitled "Interim Payment Notice." When the parties were unable to reach agreement on the value of the final account the QS issued the Final Certificate, certifying the balance he considered due to the contractor. Along with the Final Certificate the QS included the calculation of the adjusted contract sum which had been sent to the contractor previously. The QS considered the contractor's interim payment notice to be late and void and went on to state 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." The contractor raised adjudication proceedings seeking payment of the sum sought in their interim payment notice. The adjudicator decided that the interim payment notice was valid and, as no pay less notice had been issued, the contractor was entitled to the sum it claimed.

The court was asked to consider whether the email and attachments issued by the QS constituted a pay less notice. The contractor conceded that the email and attachments conveyed all the material necessary for a pay less notice but argued that it could not serve as a pay less notice because, viewed objectively, the QS did not intend it to be a pay less notice and did not describe it as such. The court considered the key question to be whether, when read together, the email and attachments were intended to constitute a pay less notice. It held that, rather than focussing on the specific detail of the language used by the sender in the covering email, one ought to consider the overall message and purpose which the email and attachments would have conveyed to the reasonable recipient. The email had stated that, if the QS was wrong about the contractual position, he was valuing the work on the same basis as the detail in the breakdown which accompanied the Final Certificate and that was the only sum the contractor was entitled to. Viewed in that way, on a broader level, one intention of the email and its attachments was that it should be responsive to the interim payment notice. The absence of the words "pay less notice" and reference to the specific clause under which it was served was not critical as neither were necessary for a notice to be valid. The question was whether, viewed objectively, it had the requisite intention to fulfil that function, which the court considered it did here.

By contrast the court took a stricter line on the clause reference issue in Systems Pipework Limited v Rotary Building Services Limited. The court was asked to consider whether documents issued by the contractor to the subcontractor amounted to proper notification of the amount due for payment in respect of the sub-contractor's final account. When considering whether proper notification had been provided, the court looked at the fact there was no reference in the documents to the clause under which notification was being given. The court held that "if a notice under a certain clause has a draconian effect pursuant to the contract, the notice should make clear that it has been issued under that clause." In that case, for a variety of reasons (including the absence of the clause reference) the court held that the notification fell short of what was required. Although Systems Pipework was not specifically concerned with a pay less notice, the same principles apply.

Key Take Away

The court confirmed in Surrey and Sussex Healthcare NHS Trust v Logan that a pay less notice can be valid without containing the words "pay less notice" and without referring to the relevant contractual clause. However, given the critical nature of the timing of a pay less notice and the draconian consequences if the notice is served out of time, we would advise parties to err on the side of caution and make it clear on the face of a pay less notice that is what it is and the relevant contract clause it is being served under.


Claire Rice

Senior Associate