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Did the Invoices set out the basis upon which the sum claimed was calculated?
Did the Invoices set out the basis upon which the sum claimed was calculated?
Sections 110A to 111 of the 1996 Act provide:
Payment notices: contractual requirements
A construction contract shall, in relation to every payment provided for by the contract—
require the payer or a specified person to give a notice complying with subsection (2) to the payee not later than five days after the payment due date, or
require the payee to give a notice complying with subsection (3) to the payer or a specified person not later than five days after the payment due date.
A notice complies with this subsection if it specifies—
in a case where the notice is given by the payer—
the sum that the payer considers to be or to have been due at the payment due date in respect of the payment, and
the basis on which that sum is calculated;
in a case where the notice is given by a specified person—
the sum that the payer or the specified person considers to be or to have been due at the payment due date in respect of the payment, and
the basis on which that sum is calculated.
A notice complies with this subsection if it specifies—
the sum that the payee considers to be or to have been due at the payment due date in respect of the payment, and
the basis on which that sum is calculated.
For the purposes of this section, it is immaterial that the sum referred to in subsection (2)(a) or (b) or (3)(a) may be zero.
If or to the extent that a contract does not comply with subsection (1), the relevant provisions of the Scheme for Construction Contracts apply.
In this and the following sections, in relation to any payment provided for by a construction contract—
“payee” means the person to whom the payment is due;
“payer” means the person from whom the payment is due;
“payment due date” means the date provided for by the contract as the date on which the payment is due;
“specified person” means a person specified in or determined in accordance with the provisions of the contract.]
Payment notices: payee's notice in default of payer's notice
This section applies in a case where, in relation to any payment provided for by a construction contract—
the contract requires the payer or a specified person to give the payee a notice complying with section 110A(2) not later than five days after the payment due date, but
notice is not given as so required.
Subject to subsection (4), the payee may give to the payer a notice complying with section 110A(3) at any time after the date on which the notice referred to in subsection (1)(a) was required by the contract to be given.
Where pursuant to subsection (2) the payee gives a notice complying with section 110A(3), the final date for payment of the sum specified in the notice shall for all purposes be regarded as postponed by the same number of days as the number of days after the date referred to in subsection (2) that the notice was given.
If—
the contract permits or requires the payee, before the date on which the notice referred to in subsection (1)(a) is required by the contract to be given, to notify the payer or a specified person of—
the sum that the payee considers will become due on the payment due date in respect of the payment, and
the basis on which that sum is calculated, and
the payee gives such notification in accordance with the contract,
that notification is to be regarded as a notice complying with section 110A(3) given pursuant to subsection (2) (and the payee may not give another such notice pursuant to that subsection).
Section 111
Requirement to pay notified sum.
Subject as follows, where a payment is provided for by a construction contract, the payer must pay the notified sum (to the extent not already paid) on or before the final date for payment.
For the purposes of this section, the “notified sum” in relation to any payment provided for by a construction contract means—
in a case where a notice complying with section 110A(2) has been given pursuant to and in accordance with a requirement of the contract, the amount specified in that notice;
in a case where a notice complying with section 110A(3) has been given pursuant to and in accordance with a requirement of the contract, the amount specified in that notice;
in a case where a notice complying with section 110A(3) has been given pursuant to and in accordance with section 110B(2), the amount specified in that notice.
The payer or a specified person may in accordance with this section give to the payee a notice of the payer's intention to pay less than the notified sum.
A notice under subsection (3) must specify—
the sum that the payer considers to be due on the date the notice is served, and
the basis on which that sum is calculated.
It is immaterial for the purposes of this subsection that the sum referred to in paragraph (a) or (b) may be zero.
A notice under subsection (3)—
must be given not later than the prescribed period before the final date for payment, and
in a case referred to in subsection (2)(b) or (c), may not be given before the notice by reference to which the notified sum is determined.
Where a notice is given under subsection (3), subsection (1) applies only in respect of the sum specified pursuant to subsection (4)(a).
In subsection (5), “prescribed period” means—
such period as the parties may agree, or
in the absence of such agreement, the period provided by the Scheme for Construction Contracts.
Subsection (9) applies where in respect of a payment—
a notice complying with section 110A(2) has been given pursuant to and in accordance with a requirement of the contract (and no notice under subsection (3) is given), or
a notice under subsection (3) is given in accordance with this section,
but on the matter being referred to adjudication the adjudicator decides that more than the sum specified in the notice should be paid.
In a case where this subsection applies, the decision of the adjudicator referred to in subsection (8) shall be construed as requiring payment of the additional amount not later than—
seven days from the date of the decision, or
the date which apart from the notice would have been the final date for payment,
whichever is the later.
Subsection (1) does not apply in relation to a payment provided for by a construction contract where—
the contract provides that, if the payee becomes insolvent the payer need not pay any sum due in respect of the payment, and
the payee has become insolvent after the prescribed period referred to in subsection (5)(a).
Subsections (2) to (5) of section 113 apply for the purposes of subsection (10) of this section as they apply for the purposes of that section.
The Claimant submits at paragraphs 21 and 22 of its Post-Hearing Submissions:
If the Defendant’s alleged terms were in fact agreed (which is denied) and if they complied with the Act (which is denied), then those terms would apply to the Invoices as follows:
The Claimant’s case regarding the timing of the Invoices would fall away.
However, it would still be necessary for the Invoices to set out “the basis on which the sum is calculated” (in order to be a payee’s default notice under s110B) and hence that part of the Claimant’s case remains. The Invoices did not so comply.
Further, the Invoices had to set out the sum due at the payment due date (in order to be a payee’s default notice under s110B). (Footnote: 5) The Claimant’s case that the Invoices did not set out the sum due at the relevant date therefore applies here also.
It is however submitted that, even if the Defendant’s alleged payment terms had been agreed, they were not compliant with the Act for the reasons already given above – with the result that inter alia paragraphs 2 and 4 of the Scheme apply instead. That is the same position as is considered in the Claimant’s case on the Scheme (paragraphs [49]-[75] of the Claimant’s Skeleton and see below in these submissions).
In Everwarm Ltd v BN Rendering Ltd [2019] EWHC 3060 (TCC); 187 Con LR 240, Alexander Nissen QC, sitting as a Deputy High Court Judge, had to consider a situation in which:
[181] As sent, the claim was not, in any sense, detailed. It was limited to one-page. Within the Statement of Final Account, no detail was given as to the "Final Invoice Value" of £378,118.84, which, in this context, is the critical figure. It was simply and singly expressed as a lump sum from which previous payments were deducted. That was the sole information which BN provided with the Statement.
The argument before him, which he accepted, was that the claim did not satisfy a contractual requirement for a “final detailed statement of the value of the Subcontract Works”. What Mr Nissen said at paragraph [182] of his judgment is of some assistance to me, given that this is a case where the Parties agreed a lump sum for the Defendant’s works:
Whether it is sufficient to refer to a lump sum in this context will depend on the pricing terms of the contract and other surrounding circumstances For example, in the case of a lump sum price contract, it may suffice simply to give the lump sum and deduct previous payments because there is nothing else that can be stated in order to specify the basis on which the sum is calculated. …..
In Advance JV v Enisca Ltd [2022] EWHC 1152 (TCC); 202 Con LR 219, Joanna Smith J. said:
[47] In summary, the approach to be taken by the court as gleaned from these authorities is as follows:
In considering the true construction of a contractual notice (including notices under the payment regime in the Act – see Grove Developments per Coulson J at [21]-[22] and S&T in the Court of Appeal at [58] per Sir Rupert Jackson), the question is not how its recipient in fact understood it. Instead "the construction of the notices must be approached objectively. The issue is how a reasonable recipient would have understood the notices", i.e. a reasonable recipient "circumstanced as the actual parties were" (see Mannai at 767 G-H and 768B-C per Lord Steyn).
The notice must be construed taking into account the "relevant objective contextual scene", i.e. the court must consider "what meanings the language read against the contextual scene will let in" (see Mannai at 767H and 768A-B). This means that, amongst other things, the reasonable recipient will be credited with knowledge of the relevant contract (see Mannai at 768B-C).
The purpose of the notice will be relevant to its construction and validity (Mannai at 768E).
The court will be "unimpressed by nice points of textual analysis or arguments which seek to condemn the notice on an artificial or contrived basis" (Thomas Vale per HHJ Kirkham at [43]; Grove at [26]). Instead, as Sir Peter Coulson says in paragraph 3.36 of his book on Construction Adjudication (4th ed. 2018), focusing specifically on Pay Less Notices:
"The courts will take a commonsense, practical view of the contents of a payless notice and will not adopt an unnecessarily restrictive interpretation of such a notice…It is thought that, provided that the notice makes tolerably clear what is being held and why, the court will not strive to intervene or endeavour to find reasons that would render such a notice invalid or ineffective".
There is no principled reason for adopting a different approach to construction in respect of different kinds of payment notices (for example because some may give rise to more draconian consequences than others) as that would be contrary to the guidance in Mannai (see Grove at [27]). However:
"the particularly adverse consequences for an employer that follow from, say, a contractor's unanswered application/payment notice are relevant to the test of the reasonable recipient".
To qualify as a valid notice, any payment notice must comply with the statutory (and, if more restrictive, the contractual) requirements in substance and form (Henia per Akenhead J at [17]). Payment notices and Pay Less Notices must clearly set out the sum which is due and/or to be deducted and the basis on which the sum is calculated. Beyond that, the question of whether a notice is or is not a valid notice is "a question of fact and degree" (Grove at [29] and S&T at [53]).
Over and above the question of whether a notice has achieved the required degree of specificity, will be the additional question of whether the document that is alleged to constitute a valid notice was in fact intended to be such and whether it is "free from ambiguity" (Henia at [17] and Grove at [42]). The sender's intention is a matter to be assessed objectively taking into account the context. (Jawaby at [43], [59] and [63]).
Although in Grove, Coulson J observed that payment notices must make plain what they are, there is no requirement for a particular type of notice, such as a Pay Less Notice, to have that title or to make specific reference to the contractual clause in order to be valid: "[t]he question is whether, viewed objectively, it had the requisite intention to fulfil that function" (Surrey & Sussex at [65]).
One way of testing the validity or otherwise of a Pay Less Notice will be to see whether it "provided an adequate agenda for an adjudication as to the true value of the Works…" (Henia at [32] and Grove at [26]).
In paragraphs 27 to 29 of the Defendant’s Post-Hearing Submissions, it submits:
The question of whether a payment application sufficiently specified the basis on which the sum is calculated is therefore a question of fact and degree which must consider the context, including the terms of the Contract.
The context in this case includes the following:
It was a lump sum contract. At the time the Contract was agreed on 17 May 2023, there was an agreed overall lump sum of £248k. There was no specific agreed breakdown to that figure. There was a breakdown of £256k figure into 4 elements, but no breakdown to £248k and breakdown was itself 4 (smaller) lump sums. There were no rates or quantities or milestones within the lump sums to use for valuations.
When the parties had discussed and agreed payment terms on 17 May 2023, the Defendant had specifically referred to payment after “invoice”. [CB/18] The expected applications were therefore invoices. It would be very odd for the Court to nevertheless condemn an invoice which was sent through. An invoice would not typically have the same level of information or detail as a excel valuation.
On previous projects, the Defendant had issued invoices which had been treated and accepted as payment applications. See for example the invoice at [MB/ 441] which just said “Works carried out. £10k”. That was accepted and paid per the WhatsApp message from Mr Fincham at 19:32 on 24 June 2022 [MB/23]. That was accepted as a sufficient basis of the calculation in that case.
In this case, the invoices did provide sufficient detail and an “adequate agenda” for a true valueadjudication. Contrary to the Claimant’s oral submissions, the invoices can be read by reference to the sections as explained below.
The Submissions then set out the Defendant’s case on an invoice by invoice basis between paragraphs 30 and 34.
I do not repeat in this judgment the lengthy and careful analysis in those paragraphs.
To recall, there were four invoices.
The first, Invoice 1078, was dated 9 June 2023 and provided:
Mr Ben James as Agreed On The First Interim Payment To Be Paid On Return.
First Interim Payment.
Employees, Scaffolding, Machines supplied
Works Carried Out On The Removal Of The Ceiling,
Breaking Up The station Bases, The Concrete Bases,
Taking Down The Metal Staircase, Breaking Up The
Main Staircase, A Second Staircase & Breaking Up
The Third Staircase By Hand.
First Interim Payment £48,000 + 5% VAT
Leaving £200,000 On Account
As Our Agreement Next Invoice To Be Paid
28-30 Days From Date Of Invoice
The second, Invoice 1079, was dated 23 June 2023 and provided:
Second Interim Payment
Wooden Ceilings & Steel Completed.
Concrete Slabs Completed.
3 Concrete Staircases Completed.
3 Concrete Blocks Completed.
Low Level Wall & Foundation Completed.
Masonry Wall & Steels Completed.
Metal Staircase Completed.
Masonry Wall ¾ Completed.
350 Tons of Rubble & Concrete Removed.
100-150 Tons To Be Removed.
The Whole Of The Inside Works Completed.
Second Interim Payment.
£100,000.00 + 5% VAT.
The third, Invoice 1081, was dated 14 July 2023 and provided:
Remaining Money Left From The Contract
Of All The Works Carried Out & Completed
On The Inside Of The Building
The Amount Of £38,750.00 + 5% VAT
Leaving £61,250.00 + VAT On The Outside
Staircase.
The fourth and final, Invoice 1083, was dated 27 July 2023 and provided:
As An Agreement Between Myself & Mr Ben James
On Monday 26/06/2023 To Supply 10 Men Plus Skips
To Remove All Debris From The Main Floor & 1st Floor
To Allow The Client To Be Able To Scan The Area.
Price Agreed Was £2,000 Per Day For Labour + Skips.
Labour Completed The Works In 3 Days.
Alex The Manager Of Mercy Has A Record Of this.
The Labour Was For The Dates Of 27/06/2023 – 29/06/2023.
As For The Skips Supplied No Extra Charge Has Been Added
Apart From The Cost Fincham Demolition Has Been Charged
The Invoice [From] Carl Bird Limited Has Been Provided.
Labour £6,000.00 + Skips £3,107.50 + 5% VAT.
The payments made against these invoices totalled £80,000, equivalent to £76,190.48 plus VAT, as follows:
16 June 2023: £10,000
26 June 2023: £10,000
21 August 2023: £10,000
29 September 2023: £10,000
27 October 2023: £10,000.
At the heart of the Defendant’s submissions in respect of the first two invoices is reference to the Defendant’s quotation in the Core Bundle at page 35 and the marked up plan in the Core Bundle at page 12. I accept that read together with those documents, the first two invoices were sufficiently clear to be valid.
The third invoice is simply a claim for the balance under the original contract, which is entirely intelligible, and the final invoice is a simple invoice for extras.
Thus in my judgment, all four invoices set out sufficiently the basis for the amount claimed.
- Heading
- Mr Roger ter Haar KC
- PROCEDURAL HISTORY
- RELEVANT FACTUAL BACKGROUND
- Statutory demand
- The Adjudication
- Adjudication enforcement proceedings
- These Part 8 proceedings
- The Suitability of Part 8 Proceedings
- The Hearing before me
- The Starting Point for Considering the Application of the 1996 Act and the Scheme
- The Terms of the Parties’ Contract
- The First Two Declarations Sought
- The Application of the 1996 Act and the Statutory Scheme to the Invoices
- Did the Invoices set out the basis upon which the sum claimed was calculated?
- Conclusions