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Is it easier to succeed with a default payment notice claim in Scotland than in England?

At the end of last month, I blogged about payment and pay less notices following Alexander Nissen QC’s judgment in Surrey and Sussex Healthcare NHS Trust v Logan Construction (South East) Ltd. This blog is also about payment and pay less notices, but this time I’m looking north of the border, to the Sheriff Appeal Court’s judgment in Trilogy Services Scotland Ltd v Windsor Residential.

Trilogy Services Scotland Ltd v Windsor Residential

This was a dispute over £14,000, which was the fourth payment under a fixed price contract that Trilogy, who are civil engineering contractors, had entered into with Windsor.

Trilogy’s last invoice (for £14,000) was issued in July 2016 (its first three invoices had been paid). The parties’ contract terms were on “one sheet of A4 paper” and didn’t include any provision for payment notices, although they did include a “due date”, which was within seven days of Windsor receiving an invoice.

Because there was no provision for a payment notice in the contract, this meant the Scheme for Construction Contracts 1998 applied. Paragraph 9(2) of the Scheme provides that the payer (Windsor) should give a payment notice “not later that five days after the payment due date”. It didn’t. Section 110B(2) of the Construction Act 1996 provides that in circumstances such as this, the payee (Trilogy) can give a payment notice that complies with section 110A(3) (a default payment notice). It didn’t.

Instead, on 9 October 2016, Trilogy’s solicitor wrote to each of the partners in Windsor. The solicitor’s letters explained that payment was outstanding despite the fact that the relevant work had been completed several months earlier. The letters asserted that payment was due and threatened to “raise proceedings” in the event that payment was not forthcoming. It wasn’t, hence the matter ended up before the Kirkcaldy Sheriff Court. The Sheriff made a number of findings, which led to Windsor’s appeal to the Sheriff Appeal Court.

Windsor’s case before the Sheriff Appeal Court

Now I don’t profess to know about Scottish procedure, so I’m not sure what the equivalent sort of claim would be in England. Would it, for example, be a bit like starting proceedings and then applying for summary judgment (as I discussed last year), or was it more akin to a declaratory relief application? Either way, it is note worthy that Trilogy did not refer the non-payment dispute to adjudication.

I love the first paragraph of the Sheriff Appeal Court’s judgment, which referred to litigants indulging in “over elaboration” as well as stating that:

“…a litigant faced with expense and delay on the part of his opponent which threatens to rival the excesses of Jarndyce v Jarndyce may feel compelled to compromise or withdraw with a real grievance.”

However, those comments are not relevant to today’s blog and it is the first part of the judgment that I’m interested in. This looks at whether the solicitor’s letters of 9 October could be a payment notice under section 110A(3). If they could, then there was a notified sum that Windsor had to pay, subject to any pay less notice (which it hadn’t given).

Section 110A(3) requires a payment notice to specify the sum due at the payment due date and the basis on which that sum is calculated. Windsor accepted that the solicitor’s letters complied with the “form and substance” of this. However, it went on to argue that it was:

“…incumbant upon a party to make it clear that it was applying for payment…”

and this required:

“(a) a considerable degree of clarity that an application was a notice under the 1996 Act; and (b) an intention for it to be such a notice before it could legally be one.”

Here, the notices were given late in the day and Windsor said that:

“…it could not have been the intention of the author of the [solicitor’s] letters that they be notices under the 1996 Act.”

In support of its argument, Windsor relied on Coulson J’s judgment in Caledonian Modular Ltd v Mar City Developments Ltd and Akenhead J’s judgment in Henia Investments Inc v Beck Interiors Ltd that a payment notice must be clear in “substance, form and intent”. Here, the “intent” was missing as (according to Windsor) it:

“…could not have been the writer’s intention to create a notified sum by way of the [solicitor’s] letters.”

Trilogy disagreed. It maintained that the Sheriff was right to find that the letters complied with the requirements of section 110A(3) and “that was the end of the matter”. It was wrong to introduce an “additional, subjective assessment of notices”.

Court says no

The court did not agree with Windsor’s submissions.

The court looked at Coulson J’s judgment in Caledonia and noted that he had referred to the court having regard to both the contractual terms and the “factual context in which those documents were sent”. Looking at the factual context here, it was not disputed that:

  • Trilogy had applied for payment with its invoice for £14,000.
  • Windsor had to issue a payment notice, which it failed to do.
  • The form and substance of the solicitor’s letters complied with section 110A(3).
  • The solicitor’s letters included a copy of the original application for payment (the invoice for £14,000), which meant the:

    “…exact details as were set out in the original application for payment were conveyed, again…Those details admittedly meet the requirements of s.110A(3) of the 1996 Act.”

The court said that Trilogy was not required to demonstrate that it intended to issue a default payment notice and that it did not read Akenhead J’s decision in Henia v Beck as requiring there to be intention in every case.

To remind you, Akenhead J stated the following at paragraph 17 of Henia v Beck:

“Although it is not apt to talk in terms of conditions precedent, I consider that the document relied upon as an Interim Application under Clause 4.11.1 must be in substance, form and intent an Interim Application stating the sum considered by the Contractor as due at the relevant due date and it must be free from ambiguity. In this context, the Interim Application should be considered in the same light as a certificate. If there are to be potentially serious consequences flowing from it being an Interim Application, it must be clear that it is what it purports to be so that the parties know what to do about it and when.”

On first reading it might appear that the court strayed from what has been said in the TCC concerning the requirement for there to be “intent”, as well as form and substance. However, we have to remember what Carr J said about determining the intention of the sender of a default payment notice in Jawaby Property Investment v The Interiors Group, namely that intention is to be assessed:

“…against its contextual setting [and] how it would have informed a reasonable recipient”.

That is, it is to be assessed objectively, rather than subjectively.

This was applied in Surrey and Sussex v Logan, where Alexander Nissen QC said that the focus should not be on the sender’s language, but rather on the:

“…overall message and purpose which the email and attachments would have conveyed to the reasonable recipient.”

Although that was in the context of a pay less notice, it could arguably apply to default payment notices given that it is consistent with what Carr J stated in Jawaby.

Applying the test set out by Carr J and Alexander Nissen QC to Trilogy’s solicitor’s letters, it is arguable that the reasonable recipient would have understood that Trilogy was claiming to be paid the amount they had claimed some three months earlier and, as such, they were intended to constitute default payment notices. The language of the letters setting out the subjective intention was irrelevant. We therefore end up with the same result as the Sherriff Appeal Court, but we have just got there slightly differently.

All in all, whether it is easier to succeed with a default payment notice claim in Scotland than in England might depend on a judgment from the Court of Session, so only time will tell. However, I will leave you with one further thought. Was it relevant that the letters were issued by the solicitor, rather than Trology itself? This does not appear to have been argued, so we will have to save that one for another day.

MCMS Ltd Jonathan Cope

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