A Pay Less Notice walks into a dive bar…
I have become Fenwick Elliott’s equivalent of Sky News Scotland Correspondent James Matthews. I don’t mind this. I’m Scottish, and I enjoy when Sky News cuts to him usually getting blown around in a gale, soaked to the skin in the rain, and shivering away on a beach at Portobello (Scotland does have beaches; they are nice and quiet). So I hope you similarly enjoy any Scottish updates I blog about. This particular blog does have UK application and is not solely a Scottish matter, so please do read on.
The most recent development to catch my eye in Scotland is the case of Muir Construction Limited v Kapital Residential Limited 2017. This Court of Session (Outer House) case was heard before Lord Bannatyne and covered the perennial issue of the application of the new(ish) payment regime notices, i.e. Payment and Pay Less Notices in construction contracts.
As you will be aware, a Pay Less Notice (“PLN”) is a notice a payer under a construction contract can issue in order to pay less than the payee (the contractor or subcontractor) has applied for. There are certain requirements a PLN has to fulfil; in short, to comply with the contractual timescales for it to be issued, to state the sum that is proposed to be paid, and to provide a basis upon which that sum has been calculated.
The latter requirement constantly arises in disputes and adjudications relating to PLNs. What information must be provided by a payer to properly provide the basis for the proposed payment?
" In short, a PLN must allow the recipient (reviewing the document reasonably) to be able to work out how the relevant sum was calculated. "
Until Muir there had been no legal authority on these requirements. However, we have generally advised that this requirement is a fairly low bar, and that the principles are likely to roughly follow those applied to withholding notices, which had to state the amount proposed to be withheld and the ground or grounds for withholding.
The PLN relied upon in Muir asserted the following: "We consider that the sum that is due on the date this notice is given is: Zero (£0.00) (the ‘Amount Due’).” No further details were provided on the notice nor in any supporting documentation.
Now there are low bars, and then there are dive bars (I have been to a few, and as a lawyer I cannot recommend them).
It is abundantly clear that no basis was provided by Kapital, but they were plucky enough to run with the PLN at the adjudication and then in court (to be fair there were other disputes between the parties, of which this formed only a part). In any event, we should be grateful to Kapital, as this decision gave rise to clear authority from the Court of Session, which will be persuasive, albeit not binding in English courts, as to what is required in order to provide a basis for the sum asserted as being due in a PLN.
I can put it no better than Lord Bannatyne’s own words where he opined in dismissing the pay less notice as being invalid:
“From none of the information provided could the reasonable recipient work out the basis on which the zero sum figure was calculated. There is no calculation put forward which would allow the reasonable recipient to understand how that figure is arrived at. There is no specification which would allow the reasonable recipient to make any sense of the figure arrived at. The defender sets forth no figures and thus no basis substantiating the zero sum figure in the PLN or in any of the other documentation upon which it relies.”
In short, a PLN must allow the recipient (reviewing the document reasonably) to be able to work out how the relevant sum was calculated and, further, the recipient must be able to make sense of how the relevant figure is derived from reading the PLN as a whole.
This is helpful authority, although, as ever, satisfying the principle will be a matter of fact and degree in each PLN.
The case also covered issues such as the right to exercise equitable retention, express waiver, and contract interpretation as to when a PLN could be issued, which are too detailed for a blog of this nature, but all those interested can find the case at: