Payment notices: a different approach in Scotland and England?

United Kingdom

Over the last year, the TCC has taken a strict approach to the interpretation of notices from payees and payment notices (see our recent Law-Nows here and here).  A recent decision of the Sheriff Appeal Court suggests that the Scottish courts may be inclined to adopt a less stringent approach.

Trilogy Services Scotland Limited v Windsor Residential

Windsor appointed Trilogy on a civil engineering project in Burntisland, Scotland.  The contract was brief.  Its entire terms appeared on “one sheet of A4 paper”.  Although it provided for payment in four instalments, it did not deal with notices.  So the provisions of the Scottish Scheme, the Construction Contracts (Scotland) Regulations 1998 were implied.  (Which for these purposes are the same as the English Scheme.)  

Windsor paid the first three instalments.  On completion of the works Trilogy sent an invoice for its fourth instalment of £14,000.  Windsor did not issue a payment notice.  No payment was forthcoming.  Trilogy’s solicitors wrote to Windsor, attaching Trilogy’s invoice and demanding payment. 

It was accepted that the contract did not allow for Trilogy’s original invoice to be treated as a default payment notice in itself (as per s.110B(3) of the Housing Grants Construction and Regeneration Act 1996).  But Trilogy argued that its solicitor’s letter chasing payment should be treated as a default payment notice issued after no payment notice had appeared from Windsor (as per s.110B(2) and s.110A(3) of the 1996 Act).  Windsor acknowledged the letter met the requirements of substance and form, but argued that it failed to demonstrate the requisite intention to be such a payment notice. 

So the question before the court boiled down to this: did the solicitor’s letter meet the requirements of a payment notice? 

The decision

The Sheriff Appeal Court upheld that the solicitor’s letter was a valid default payment notice.  It met the requirements of a payment notice (under s.110A(3)), issued after no payment notice came from Windsor. 

The court did not accept Windsor’s arguments about intention.  It found that Trilogy’s intention in serving the notice was clear given the factual context; the letter was chasing for sums claimed several months earlier.  The court said that it did not read a previous English case as requiring intention in each and every case (Henia Investments Inc v Beck Interiors Ltd, see below).  That would “drive a horse and cart through the provisions of the 1996 Act”.  The court doesn’t elaborate on this or suggest the circumstances in which intention would not need to be shown.  The result was that the letter from Trilogy’s solicitors was sufficient and it would be entitled to payment.

A different approach to payment notices in England?

As we have reported in two recent Law-Nows (click here and here) the Technology and Construction Court in England has been taking a strict approach when it comes to notices from payees.  The Henia case required that “an application for interim payment must be in substance, form and intent an interim application [and] free from ambiguity”.  This was followed by Jawaby Property Investment Ltd v The Interiors Group Ltd and Surrey and Sussex Healthcare NHS Trust v Logan Construction, (cases not referred to in Trilogy).  This “high threshold” has been applied to match the  similarly stringent approach to payment notices.  This limits the potential “draconian” consequences of a notified sum becoming automatically payable where the paying party fails to serve a valid payment notice or pay less notice.  The point is if the payee’s intention is clear, the parties know what to do and when.  The payer can choose to serve a payment or pay less notice as appropriate.

Where Trilogy diverges is that its interpretation of the “intent” element appears to differ from that applied by the TCC.  The TCC has focused on the objective intention of the payee to issue the required notice itself, not just to receive payment.  In Trilogy the court said that Henia did not import a requirement of “intention” in each and every case.  When it went on to find intention was nevertheless present, it did so from the factual context.  

The upshot is that Trilogy may point to a less stringent approach to the notice requirements under s.110A(3).  (These do not refer to the need to demonstrate intention but simply require that the notice specifies the sum the payee considers due at the due date and the basis on which that sum was calculated.  The requirement of “intention” has developed from case law.)  This is arguably consistent with the Scottish Courts’ recent approach to notices more generally, where they have been keen to look as to the substance of the notice rather than its form (see Hoe International v Andersen). 

Conclusion

It’s too early to say whether a divergent approach between Scotland and England will continue.  What does seem clear is that this area is likely to continue to provide fertile ground for disputes. 

Although a less stringent approach to the intention requirement may be good news for payees, that will likely be little comfort to the likes of Trilogy which spent 18 months pursuing £14,000. As always, parties should be as clear as possible when serving notices to reduce the scope for ambiguity and argument. 

References:

Trilogy Services Scotland Ltd v Windsor Residential [2017] SAC (Civ) 2

Caledonian Modular v Mar City Developments [2015] EWHC 1855 (TCC)

Henia Investments v Beck Interiors [2015] EWHC 2433 (TCC)

Jawaby Property Investment Limited v the Interiors Group [2016] EWHC 557 (TCC)

Surrey and Sussex Healthcare NHS Trust v Logan Construction (South East) Limited [2017] EWHC 17 (TCC)

Hoe International Limited v Andersen [2016] CSOH 33