Law firm Shepherd and Wedderburn outlines that a recent case demonstrates that a payee to a construction contract may not always require to show that it was their intention to give notice under the Housing Grants, Construction and Regeneration Act 1996 when serving a payment notice.

Factual Background

In the Scottish case of Trilogy Services Scotland Limited v Windsor Residential SAC (Civ) 2, the Court was asked to determine whether or not letters sent by the contractor’s solicitor to the employer were intended to be a default payment notice for the purposes of section 110B(2) of the 1996 Act.

The dispute related to a fixed price contract for the execution of certain works in Burtisland. The contract was relatively short and provided for payment in four instalments. The contract also provided for a ‘payment due date’, which was to be within seven days of receipt of the contractor’s invoice. There was no dispute that the contractor had carried out and completed the works in respect of the first three instalments. However, a dispute arose after Trilogy issued an invoice on 16 July 2015 in respect of the fourth and final payment, which was not paid.

The parties’ contract did not make provision for the issuing of payment notices. Therefore, in terms of section 110(5) of the 1996 Act, the relevant provisions of the Scheme for Construction Contracts (Scotland) Regulations 1998 (the Scheme) applied.

In accordance with the Scheme, the employer, Windsor Residential, should have issued a payment notice to the contractor within five days after the payment due date specifying the amount that they considered to be due to the contractor. In this instance, however, this was not done. In terms of section 110A(3) of the 1996 Act, in circumstances where the payer has not issued a payment notice, the payee may issue its own notice to the payer (often referred to as a default payment notice). Such a notice can be given any time after the date on which the payer ought to have given their notice.

On 9 October 2016 the contractor’s solicitor sent a letter to Windsor Residential explaining that the payment was outstanding despite the fact that the work had been carried out in accordance with the Contract. The solicitor included with their letter a copy of the outstanding invoice and threatened to raise proceedings in the event that payment was not made.

The Court was asked to consider whether or not the letter issued by the contractor’s solicitor, accompanied by the outstanding invoice, could constitute a notice under section 110A(3) of the 1996 Act.

Court’s Decision

The employer argued that the letters from the contractor’s solicitor should not be regarded as a payment notice, as it could not have been the intention of the author of the letters that they be a payment notice for the purposes of the 1996 Act. The employer also argued that there needed to be a considerable degree of clarity on what had been done and that the letter lacked such clarity. The employer relied upon the decision in Henia Investments Inc v Beck Interiors Ltd EWHC 2433 in which the court considered whether the document relied upon constituted an interim application. The court held that the relevant document could not be an interim application as it was not in substance, form and intent an interim application.

Whilst the courts have identified intent as relevant to establishing the validity of a notice, in this instance the Sheriff clarified that there was no need to import ’a requirement of intention’ into each and every case. The Court highlighted the clarity of the factual context and stated that there could be no doubt as to the contractor’s intention – they wished to be paid for the amount they had first claimed. The Court was firmly of the view that the letters constituted a valid notice under the 1996 Act.

This case highlights that there may not be a requirement in each and every case to show that the intention was to give notice under the 1996 Act, as long as it is clear that a party intended to request payment in those circumstances. The court did highlight, however, that the contractual and factual context will be decisive in determining the issue.