The requirements of a valid payment notice issued under a construction contract were considered in a previous update: “A Payment Notice? Be Clear?” with reference to the case of Surrey and Sussex Healthcare NHS Trust v Logan Construction (South East) Ltd (“Surrey and Sussex”) a decision of the English High Court. In the week following this decision the Scottish Sheriff Appeal Court was similarly tasked with determining the validity of payment notices in Trilogy Services Scotland Limited v Windsor Residential (“Trilogy”).This update from David Wilson and Rebecca Barrass considers the approach taken in Trilogy and the impact the differing decision will have on the validity of payment notices issued under construction contracts.

Trilogy Services Scotland Limited v Windsor Residential Sheriff Appeal Court

Facts

Trilogy Services, civil engineering contractors, were employed by Windsor Residential to carry out works in Burntisland. The contract between the parties was brief and, as required by the Housing Grants, Construction and Regeneration Act 1996 (“1996 Act”), the relevant provisions of the Scheme for Construction Contracts (Scotland) Regulations applied including specifically the provisions in relation to payment notices.

Windsor Residential failed to remunerate Trilogy Services, or issue a notice, in respect of its final invoice. Thereafter Trilogy Services sent a letter and the outstanding invoice to Windsor Residential demanding payment. In the absence of payment, Trilogy Services raised an action. It was for the Sheriff Appeal Court to determine whether the letter sent by Trilogy Services to Windsor Residential constituted a valid payment notice.

Decision

While Windsor Residential did not dispute that the payment notice complied with the requirements in the 1996 Act, it was their position that Trilogy Service’s intention for the letter to be a payment notice was lacking. In support, the decisions in Caledonian Modular Ltd v Mar City Developments Ltd and; Henia Investments Inc v Beck Interiors Ltd were relied on. In both of these decisions the Technology and Construction Court (TCC) took the factual context into account in order to determine whether the parties intended the documents in question to represent valid payment notices.

On arriving at his decision in Trilogy the Sheriff distinguished both Caledonian and Henia on the basis that the documents relied on in those cases lacked clarity. In the present case the Sheriff determined that the factual context of the documents was clear and, consequently, Trilogy Service’s intention for the document to constitute a valid payment notice was clear. The Sheriff determined that the letter and accompanying invoice did constitute a valid notice under the 1996 Act.

Comment

In Trilogy the Sheriff passed comment on the requirement of intention and valid payment notices, stating that to import a requirement of intention in each and every case would “drive a horse and cart through the provisions of the 1996 Act”. The Sheriff’s decision may be considered as a more conservative interpretation of the 1996 Act than that taken in Surrey and Sussex however Trilogy can be distinguished as that the factual context behind the payment notices was clear and undisputed. The same could not be said in Surrey and Sussex.

For the avoidance of doubt: a contractor ought to state clearly its intentions behind a payment notice and; an employer should consider purported payment notices carefully to ensure the validity requirements are satisfied.