Can an email constitute a valid pay less notice?
It is rare to find ‘smash and grab’ adjudications which throw up any new precedence. An exception was the recent case of Jonjohnson Construction v Eagle Building Services, says James Sargeant.
A “smash and grab” adjudication has become a well-known concept in the industry that dates back to the introduction of the Housing Grants, Construction and Regeneration Act 1996. Case law on this type of adjudication is now both extensive and firmly established.
The key ingredients of smash and grab are as follows. The employer fails to serve a valid or timely payment notice or pay less notice. The contractor’s application becomes a default payment notice under section 110B of the act. The sum within the payment notice becomes the notified sum. The employer must pay the notified sum by the final date for payment – but fails to do so.
The concept seems simple on the surface, particularly when the contract for the works is either oral or bespoke, and does not have the necessary payment or adjudication provisions which comply with the act.
It is rare to find smash and grab adjudications which throw up any new points of interest or any new precedence. An exception was the recent case of Jonjohnson Construction v Eagle Building Services (29 June 2017). It deals with the issue: “Can an email constitute a valid pay less notice?”
Jonjohnson was contracted by Eagle to install various steelwork foundations at a site in Gloucestershire. Jonjohnson applied for payment in March 2017 of £38,843.
Eagle responded to the application via email, stating: “Don’t agree with your application. Phase 2 has to be redone due to your steel not to drawing. Our cost for breaking out and re-concrete phase 2 was in excess of £20k. Take the £20k from the £38k for phase 1 leave £18,843…”
“The judge decided that one should look at the intention that would be conveyed to a reasonable recipient of the email.”
Eagle did not receive payment of its application and so submitted a default payment notice under section 110B(2) of the act in April 2017. Again, Eagle did not pay and so a series of adjudications began.
The first adjudicator decided that Jonjohnson was not entitled to submit the default payment notice in April 2017 because its first application had become the default notice. The second adjudication was abandoned and the third adjudicator decided that the email from Eagle in response to Jonjohnson’s March application did not constitute an effective pay less notice, although no explanation was given as to why.
Following the third adjudicator’s decision, Eagle again did not pay Jonjohnson, and so Jonjohnson began enforcement proceedings to recover the monies it had been awarded.
The matter came before the court and despite Eagle’s best attempts, the judge ultimately agreed with the third adjudicator’s decision.
When reaching his decision the judge considered the lack of explanation from the third adjudicator as to whether or not the email from Eagle constituted a valid pay less notice. This very question had also recently been considered in the case of Surrey and Sussex Healthcare NHS Trust v Logan Construction (South East), where it was held that the email did constitute a valid pay less notice.
So, why did the third adjudicator and subsequently the judge find otherwise in the Jonjohnson matter? Well, the judge in Surrey decided that rather than focus on the specific language used in the email, one should look at the intention that would be conveyed to a reasonable recipient of the email, and in the Surrey matter it was clear that the employer intended to pay less.
Whereas in the Jonjohnson matter, we can reasonably infer that the judge did not feel the intention of the email was to act as a pay less notice.
Ensuring a pay less notice is valid
These cases show the importance of ensuring any pay less notice served is both valid and timely, otherwise serious problems can result.
There are three simple steps to ensure this:
- Read the payment terms of your provision, or the act if the contract lacks the relevant payment provisions, to ensure you know when the pay less notice should be submitted.
- Ensure that the pay less notice is clear as to its purpose, and clearly mark it as a pay less notice.
- Ensure that the pay less notice clearly states the sum considered due and how that sum was calculated.
Failure to follow these steps and you could find yourself the victim of a successful smash and grab adjudication, like Eagle.
James Sargeant is an associate at law firm Quigg Golden