Page 16 - Plumbheat Magazine

Business - Defaulting Payment
A case study in how a defaulting payer can use the court system to wear down its creditor
Barrister, Professor Rudi Klein, considers a recent case in the Sheriff Appeal Court where the sum in dispute was £14,000.
THE CASE was Trilogy Services Scotland Ltd v Windsor Residential [2017] SAC (Cir) 2. Trilogy are civil engineering contractors. In November 2014 they signed a fixed price contract with Windsor to carry out certain works in Burntisland. The contract was on one sheet of A4 paper.
The contract price was to
be paid in four ‘increments’
or instalments. The first three instalments were paid. The dispute arose in July 2015 when Trilogy invoiced Windsor for £14,000 being the final payment. Windsor failed to pay this.
Need for payment notices
The parties’ contract made no provision for payment notices as required by the Construction Act (the Housing Grants, Construction and Regeneration Act 1996). As a result, section 110A (5) of the Act imports into the contract the relevant provisions of the Scheme for Construction Contracts (Scotland) Regulations 1998.
The parties’ contract did provide for a ‘payment due date’ which was 7 days after receipt of invoice. Under the Scheme Windsor was required – not later than 5 days after the payment due date – to give notice to Trilogy specifying the sum considered due, the work to which the sum related and the basis upon which it was calculated.
No such notice was
given by Windsor. In these circumstances the payee (Trilogy) was entitled under section 110B (2) of the Act to issue its own notice (following the expiry of the 5 days
after the payment due date). However this is not necessary if the payee has already issued an application for payment,
as required or allowed for in the contract. Such default notice (or application) would then become the amount due, unless a subsequent pay less notice was issued. The content of this default notice or application has to be the same as that for the payer’s notice.
So, what did trilogy do?
Some 3 months after submitting their final
invoice, Trilogy instructed their solicitors to demand payment of the outstanding £14,000 from Windsor. The demand was duly sent with
a copy of the invoice and a threat to issue proceedings. Payment was not made and subsequently the Kirkcaldy Sheriff Court ordered Windsor to make payment. Windsor appealed.
The appeal
Windsor was now clearly dragging things out. It appealed to the Sheriff Appeal Court. The basis of the appeal was slender in the extreme. It asked the Court to consider whether the demand from Trilogy’s solicitors together with the outstanding invoice constituted a proper payment
notice conforming to the requirements of the Act. Whilst the solicitor’s letter was in form and substance compliant with the Act it was not intended to be a payment notice issued for the purpose of complying with the Act. Trilogy responded that demonstrating ‘intention’ was too subjective and therefore not relevant to whether or not a payment notice was valid.
The court’s decision
Windsor was ‘grasping at straws’. Trilogy had completed the works and were therefore entitled to the £14,000. They had applied for that amount under the contract. Windsor had failed to issue a payment notice. Both in form and substance the letter and
copy invoice from Trilogy’s solicitors satisfied the statutory requirements.
Moreover Trilogy’s intentions were clear. They wished to
be paid the outstanding sum. To demand that in every case
there was a need to prove that a notice was intended to be
a payment notice (potentially giving rise to a due amount under the Act) would ‘drive a horse and cart’ through the Act. Therefore the solicitor’s letter with the invoice was a valid notice.
Observations
Although Trilogy would have recovered most of their legal costs, the total costs for both sides would have exceeded
by a wide margin the £14,000; and all this because the payer was simply ‘ducking and diving’ to avoid paying the money. From the judgment it’s unclear why the original invoice was not considered to be a default notice (in the absence of a payment notice from Windsor) and therefore the amount
due. Under the Scheme that amount should have been paid within 17 days of the due payment date (the receipt of the invoice). •
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Autumn 2017