Background
Laura Tierney hired G F Bisset to construct a luxury dog hotel in Aberdeenshire for £150,000. Bisset began the work in September 2015, and issued three separate valuations to Ms Tierney over the next 9 months. Tierney paid the first two, but withheld payment for Bisset’s third valuation, claiming that the notice was not valid.
Unfortunately, the only payment provisions in the contract were that valuations were to be issued by Bisset monthly, and that payment terms were 14 days. As the payment terms were not adequate in terms of the requirements of the Housing Grants, Construction and Regeneration Act 1996, certain payment terms from the Scheme for Construction Contracts (Scotland) Regulations 1998 were implied into the contract.
Tierney sued Bisset in the Sheriff Court for the return of overpayments alleged to have been made to Bisset and for damages for breach of contract. Bisset counterclaimed and sought payment for their third valuation. At first-instance the sheriff rejected Tierney’s case and upheld Bisset’s third valuation. The sheriff held that, absent a payment notice or pay less notice from Tierney, Bisset’s valuation was the ‘default’ payment notice, under section 110B of the 1996 Act, and was due for payment. Tierney appealed the decision.
Arguments and decision:
At the Sheriff Appeal Court, Tierney argued that the third valuation was invalid as a default payment notice for three reasons:
- It did not provide a sufficient breakdown or details for the sums owed, as required by section 110A(3) of the 1996 Act;
- It lacked the formal requirements and intention to be considered a payment notice; and
- It had not been issued monthly as required by the contract.
The Sheriff Principal rejected each of these arguments. On the first point, the court considered how much detail must be contained in the calculation of the payment notice sum. Section 110A(3) states that “the basis on which that sum is calculated” must be included. Tierney claimed that, since the third valuation contained lump sums with no breakdown of factors like labour and material, this required “basis” was lacking. However, the Sheriff Principal ruled that the amount of specification and detail required is informed by the parties’ contract and must provide fair notice of the amounts claimed and what the amounts relate to. Since Tierney and Bisset did not use a standard form of building contract, providing a simple calculation of deductions and additions was enough to satisfy section 110A(3). The Sheriff Principal went on to say that if Tierney been unhappy with the valuation or the level of detail provided, it was open to her to issue a pay less notice – which she did not do.
For the second point, Tierney argued that the wording of the valuation had to make clear that it was intended as a payment notice. Tierney argued that the valuation did not say explicitly that it was a payment notice, and did not give reasonable notice that the payment period had been started. The Sheriff Principal disagreed, finding that it was obvious that the third valuation was asking for payment, as it specified the sums due within 14 days. A payment notice does not require specific labelling to be valid, as long as a reasonable recipient would be in no doubt about its intention. The Sheriff Principal was satisfied that the intention of the valuation was clear – as an application for payment (becoming a default payment notice in the absence of Tierney’s payment notice).
Tierney’s final argument was that Bisset was supposed to provide a valuation every month. Bisset only sent three separate valuations in 9 months, so the third notice did not comply with the contract. The Sheriff Principal held that this did not invalidate Bisset’s right to issue a payment notice under section 110A(3), in the absence of a payment notice from Tierney, as these issues were independent of each other. The court observed that it was Tierney who failed to issue a payment notice according to section 110A(2), and this entitled Bisset to serve their third valuation under section 110A(3). Again, it was always open to Tierney to issue a pay less notice if she disagreed with the sums claimed in Bisset’s valuations.
The Sheriff Appeal Court therefore rejected Tierney’s appeal, and concluded that Bisset’s third valuation was a valid application for payment, becoming the ‘default’ payment notice, and that Tierney must pay up.
Key points to take away
It is important to ensure that payment terms are clear in any construction contract. That avoids ambiguity and the risk of payment terms from the Scheme being implied into the contract (sometimes without parties realising it; as in this case). Adopting a standard form of building contract is one way of bringing clarity and certainty to the payment process.
If you dispute or are in any doubt as to the effect of a valuation or payment notice, then remember to issue a pay less notice against it. That is a far more certain measure than raising a court action to dispute the validity of a payment notice.