Construction Notices: Substance over form

2 February, 2017

As we all know the process of contractors being able to serve interim payment notices and employers being required to serve pay less notices is a creature of statute, derived from the mandatory requirements of the Housing Grants, Construction and Regeneration Act 1996.  Both provide assistance to contractors in getting paid for work during the currency of a contract and an element of certainty over any potential challenge to a contractor’s entitlement to be paid.

What Constitutes an Interim Payment Notice

In Surrey and Sussex Healthcare NHS Trust v Logan Construction (South East) Limited the court had to consider whether an excel workbook called “ESH724-Logan Interim Payment Notice – Valuation No.24 – 20092016.xlsx” containing a worksheet called “Interim Payment Notice” could constitute an interim payment notice in circumstances where it was sent by email in the context of final account discussions and was not referred to by the contractor as constituting an interim payment notice under the contract until the last date for the employer to serve a pay less notice in respect of it (if it was a valid interim payment notice) had passed.  Notwithstanding the fact that the contractor did not make clear at the time its intention that the document was served as an interim payment notice the court found for the contractor.  Viewed objectively the document was sufficiently clear and free from ambiguity to stand as an interim payment notice.  The fact it was produced in the context of a final account discussion did not affect that assessment.

What Constitutes a Pay Less Notice

This being the case the court had to consider whether a document which on its face had the appearance of a final certificate could stand as a pay less notice in response to the interim payment notice.  If it could,  it was common ground that it would be sufficient to prevent the sums set out in the interim payment notice from becoming due.  While the document did not on its face indicate that it was a pay less notice (which was understandable given the employer did not view the spreadsheet as requiring a pay less notice to be served) the court determined that the final certificate satisfied all the requirements of a pay less notice.  It made clear how much the employer thought was due and why.  That being the case the question the court had to consider was whether if the sender of the document did not intend it to stand as a pay less notice, could it be treated as such.  The Court determined the reasonable recipient would have understood it to be a direct response to the documents provided within the excel spreadsheet.  It being determined that the excel spreadsheet stood as an interim payment notice, the response could be treated as a pay less notice in response to it.

What this means

The overriding theme of the decision is that the parties should be prepared to look at the substance of documents against the contractual framework in order to interpret their potential effect.  That a document is not overtly described as a pay less notice or indeed an interim payment notice does not mean it cannot stand as such, if all of the legal formalities are otherwise satisfied and it is sufficiently clear (to a reasonable recipient) what purpose the document is intended to serve