Surrey and Sussex Healthcare NHS Trust v Logan Construction (South East) Ltd

[2017] EWHC 17 (TCC)

Here the Trust sought a declaration about the validity or otherwise of an alleged Interim Payment and Pay Less Notice. An adjudicator had decided that, as the Interim Payment Notice was valid but the Pay Less Notice was not, the Trust was liable to pay Logan just over £1.1 million.

Practical completion was certified on 25 August 2015. Although Logan made no applications for interim payment, Interim Certificates were issued every two months as required by the Contract. The Certificate of Making Good Defects was issued on 24 August 2016 triggering the 28-day period for the issue of the Final Certificate, which had to be issued by 21 September 2016. A final account meeting was arranged to take place on 21 September 2016. Shortly before midnight on 20 September 2016 Logan sent an email attaching a Payment Notice. The Trust treated the document as being Logan’s position on the final account valuation for the forthcoming meeting. During the meeting, the final account valuation was discussed at high level. At no time was there any discussion about the issuing of an Interim Certificate or that the document issued the night before was intended to be an Interim Payment Notice.  No agreement was reached.

The Final Certificate was issued. The covering email noted that the Payment Notice was “out of date and void”, but that “in any event, the details stated in the Final Certificate are the same as would have been stated in any final Interim Certificate which may have been issued”. A proposal was made that there should be a standstill agreement whilst the parties attempted to settle their differences through mediation. 

If Logan’s Interim Payment Notice was validly issued on 20 September 2016, it was common ground that the expiry date for service of a Pay Less Notice was 24 September 2016. On 28 September 2016, Logan noted that no Pay Less Notice had been issued. On 19 October 2016, Logan issued a Notice of Adjudication claiming payment of the sum set out in the Interim Payment Notice.

The Trust said that the court should construe the purported Interim Payment Notice against the factual background. The parties were trying to resolve the final account and, save for what was apparent on the face of the document itself, there was no reference to or prior discussion about Logan seeking an interim payment.  The email was sent by Logan without drawing attention to the interim payment regime. Instead Logan diverted the Trust’s attention towards the final account meeting. Logan waited until expiry of the time for service of a Pay Less Notice before making its position clear. A contractor had to be open and transparent about its intentions. The notice must be unambiguous. Here the true intention had been buried away.

Logan said that the Interim Payment Notice was clear on its face. It identified itself as an Interim Payment Notice and made particular reference to clause 4.10.  The Notice made reference to Valuation No. 24 because it was the 24th payment cycle. Whilst the covering email which enclosed the Notice was not as clear as it might have been, there was sufficient clarity from the Interim Payment Notice itself.

All that had happened here was that the Contract Administrator had taken his eye off the ball, and not having read the Contract properly was not aware that Logan was entitled to issue an Interim Payment Notice when it did. The factual background relied on by the Trust was wholly irrelevant to the question of the validity of the notice. All that mattered was whether Logan had issued a notice which was in substance, form and intent an Interim Payment Notice. If so, then it qualified as such.

Deputy Judge Nissen QC said that there was a “high threshold” to be met by any contractor who seeks to take advantage of the provisions whereby a sum automatically becomes payable if a timely employer’s notice is not served.  Therefore, it was relevant to consider the background matters. Here a relevant consideration was that the present dispute would never have arisen had a timely Interim Certificate been issued. It was no answer to say by way of mitigation that the parties were operating the final account process and that this overtook the interim payment regime. The Contract provided for and permitted the continued receipt of interim payments until the issue of the Final Certificate.

The attachment to the email was an Interim Payment Notice in substance, form and intent. Viewed on its face, the Interim Payment Notice was both clear and free from ambiguity. The document said, in terms, that it was an Interim Payment Notice. The Trust was therefore provided with reasonable notice as to its content.  

The Judge then considered whether the Trust’s email attaching the Final Certificate could be considered to be a valid Pay Less Notice. Here the valuation of Logan’s work was set out in some detail in the Final Certificate and accompanying breakdown. This was the only sum to which Logan was entitled, whether by way of final account or interim payment. Thus on a broad level, one purpose of the email and attachments was that it was responsive to the Interim Payment Notice. Looked at another way, the documents provided an adequate agenda for an adjudication about the true value of the Works on an interim basis for the purposes of Valuation No. 24.  There was a detailed breakdown of the Trust’s position. There was nothing more that Logan needed to know.

The Judge saw no difficulty with the notion of serving a contingent Pay Less Notice. Here the Contract Administrator was simply saying that, if he was wrong about the invalidity of the Interim Payment Notice, the Final Certificate reflected everything he wanted to say in response to it. The Trust had therefore, on 21 September 2016, provided a valid Pay Less Notice.

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