At the end of January 2017 I wrote an e-bulletin on the recent case of Surrey and Sussex Healthcare NHS Trust v Logan Construction (South East) Ltd where, amongst other things, it was decided that "an essential requirement" of the Trust's notification was that it was "intended" by the relevant party to constitute a Pay Less Notice. That intention was to be "derived from the manner in which it would have informed the reasonable recipient".

This case is consistent with a number of English authorities that have recently been issued in relation to the meaning of the Construction Act and, in particular, the payment regime under that Act.

A few weeks on, a slightly conflicting decision has been issued by a Scottish Sheriff Court in the appeal case of Trilogy Services Scotland Ltd ("Trilogy") v Windsor Residential ("Windsor") [2017] SAC (Civ) 2.

In this case, Windsor had failed to issue a payer notice. Sometime after the date when the payer notice was due to be issued Trilogy's solicitors issued a letter to Windsor accompanied by a copy of Trilogy's outstanding invoice. The letter referred to the previous invoices having been paid in accordance with the contract and to the fourth increment of £14,000 remaining outstanding, despite the fact that the relevant work had been completed in accordance with the contract. It was asserted in the letter that payment was due and that previous demands for payment had been ignored. The letter culminates with a threat to raise proceedings for recovery in the absence of payment.

Windsor contended that this letter was not a valid payee default notice as it was not clear from its substance, form and intent that this was intended to be a notice complying with s.110A(3) of the Construction Act. It argued that it was incumbent upon a party to make clear that it was applying for payment. It stated that Trilogy's solicitor's letter failed to do so.

The Court here stopped short of declaring intention an irrelevant factor but held that it did not read the decision of Akenhead J. in Henia Investments as importing a requirement of "intention" in each and every case. The Court stated that such an interpretation would "drive a horse and cart throug" the provisions of the Construction Act.

Accordingly, the Court held that the letter from Trilogy's solicitor accompanied by the outstanding invoice (which noted the sum due and how it was calculated) did constitute a valid payee default notice under the Construction Act. It emphasised the importance of the contractual and factual context, particularly in this case, where issuing an application for payment.

What does this mean in practical terms?

Whilst this decision is not binding on the English Courts, it would certainly be of relevance in Scotland. Irrespective, it only serves to show the complexities surrounding interpretation of the Construction Act and the moving feast of what is required by parties to comply with the payment provisions within that Act.

To avoid any debate on compliance Contractors should ensure that all applications for payment are clearly marked as being intended to form a request for payment. They should also take steps to set out the sum due and how it is calculated, and comply with all other requirements set out in the contract as being necessary to constitute a valid application/payee default notice.

Employers on the other hand (and their advisors) should adopt a cautious approach to demands for payment received from contractors or their representatives, irrespective of their form and ensure that at all stages compliant payer and pay less notices are issued timeously.


Louise Shiels

Head of Dispute Resolution and Risk & Partner

Manus Quigg