A recent case in the TCC demonstrates (again) just how important it is to get your Payment and Pay Less Notices right.
Surrey and Sussex Healthcare NHS Trust (the “Trust”) engaged Logan Construction (South East) Limited (“Logan”) as main contractor.
As the project was drawing to a conclusion, Logan issued an application for payment for £5.9m. The Trust served a Pay Less Notice stating a sum due to Logan of £4.9m. Logan argued that the Pay Less Notice was invalid and took the issue to adjudication. The Trust argued that even if its Pay Less Notice was invalid, it didn’t matter because Logan’s application for payment was also invalid.
The adjudicator agreed with Logan’s position – the application for payment set out the amount applied for and how it had been calculated. Logan was therefore awarded the full amount applied for because, in the absence of a valid Payment or Pay Less Notice, the sum claimed had become the “notified sum”.
The Trust referred the matter to the Court.
It was noted that the problems with the validity of the documents arose as both the Trust’s and Logan’s quantity surveyors had been busy with their final account negotiations.
The Judge applied an objective “substance, form and intent” test and found that the application for payment was valid. The outcome therefore turned on the validity of the purported Pay Less Notice.
The Court noted that the Pay Less Notice indicated it was being served in response to Logan’s final account when, in fact, it was an interim application. It also noted that the Trust’s QS was wrong in stating that Logan’s interim application had no contractual effect.
Again, the Court adopted an objective test and found that the Pay Less Notice was intended to apply to Logan’s interim application – even if it did not expressly say so. The Pay Less Notice was therefore valid and the Trust did not have to pay the extra £1m.
The parties can now have a different dispute about the true value of the works.
COMMENT: there have been a number of decisions concerning “smash and grab” adjudications and this judgment reinforces the importance of getting your Notices right.
