Case in focus: Issuing payment notices

The case

Surrey and Sussex Healthcare NHS Trust vs Logan Construction (South East) Ltd [2017]. Before Alexander Nissen QC (sitting as a deputy High Court judge) in the Technology and Construction Court. Judgment delivered 13 January 2017.

The facts

Surrey and Sussex entered into a contract with Logan to carry out works at the East Surrey Hospital. The payment terms required the contract administrator to issue interim certificates at certain times, including within five days of the certificate of making good defects, and that if the contract administrator failed to do so, Logan could issue an interim payment notice stating the sum due, subject to any payless notice. The contract also provided that the final certificate had to be issued within 30 days of the certificate of making good defects.

The certificate of making good defects was issued on 24 August 2016 but the contract administrator failed to issue an interim certificate within five days. As the final certificate was due 21 September 2016 the parties arranged to meet on this date to discuss the final account.

On 20 September 2016, Logan emailed Surrey and Sussex’s QS attaching a work sheet entitled “Interim Payment Notice” which claimed a payment of £1,105,557.95 and included a breakdown and supporting information. Having failed to agree the account at the meeting, at around 6pm on 21 September 2016 Surrey and Sussex’s QS emailed to Surrey and Sussex the final certificate, plus supporting documentation indicating a payment of £14,235.43. This email, which asserted incorrectly that Logan’s 20 September interim payment notice was void and that any interim certificate would have stated the same as the final certificate, was copied to Logan.

Logan then commenced adjudication. On 25 November 2016 the adjudicator awarded Logan £1,105,557.95 on grounds that while the attachment to the 20 September email was a valid interim payment notice, the 21 September final certificate could not stand as a valid payless notice. Surrey and Sussex commenced Part 8 proceedings seeking contrary declarations.

The issues

Did Logan’s email of 20 September 2016 attach a valid Interim Payment Notice and if so, did the final certificate of 21 September 2016 amount to a valid payless notice?

The decision

The judge stated that the question of whether or not the attachment to Logan’s email of 20 September 2016 amounted to an interim payment notice in substance, form and intent had to be considered in the context of the contractual and factual setting in which it was issued. The contract administrator’s failure to issue an interim certificate within five days of 24 August 2016 was relevant as it meant that Logan’s issue of an interim payment notice on 20 September was consistent with its contractual entitlements.

The judge found that the attachment to Logan’s email was clearly labelled (notwithstanding Logan’s use of faint grey type) and free from ambiguity so that Surrey and Sussex was put on reasonable notice as to what it contained.

He concluded that, objectively, there were sufficient indications on the face of the documents and in the description of the attachment that Logan intended to issue an interim payment notice and the objective reader would have been aware that Logan had a right to do so in the absence of an interim certificate.  Therefore the attachment to Logan’s email of 20 September did comprise a valid interim payment notice.

Whilst conceding that the documents met the contractual requirement of specifying the sum Surrey and Sussex considered to be due and the basis upon which that sum had been calculated, Logan contended that as they were neither intended to be nor described as such, the final certificate documents could not comprise a payless notice.

The judge disagreed, finding that a reasonable recipient would have understood that Logan’s interim payment notice was not out of time and that the final certificate documents amounted to a counter-valuation of the work, whether by way of final account or interim payment. Thus, on a broader level the documents emailed by Surrey and Sussex’s QS on 21 September were responsive to Logan’s interim payment notice and as such provided an adequate agenda for adjudication: Logan did not need to know anything more about the disputed account.

As Surrey and Sussex could rely upon a valid payless notice the judge declined to enforce the adjudicator’s award.

Commentary

Here there was no dispute about the timing of the notices, rather both Logan and Surrey and Sussex sought to rely upon documents, the intent and effect of which was not unequivocally clear. In this situation, the court will put itself in the position of the recipient and objectively assess the descriptions used and the substance, form and intention of the relevant documents in the appropriate contractual and factual setting.

Ted Lowery is a partner in Fenwick Elliott