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The importance of clear notices – Systems Pipework Ltd v Rotary Building Services Ltd

January 2018 - Issue 101

We have previously commented on the application of the Housing Grants, Construction and Regeneration Act 1996 and pay less notices (Pay Less Notices: Court of Appeal’s judgment in Adam Architecture v Halsbury Homes Ltd). The recent case of Systems Pipework Limited (Systems Pipework) v Rotary Building Services Limited (Rotary) further emphasises the importance of clear notices, without ambiguities and labelled accurately so the payer is aware of the triggering of the payment period.

Systems Pipework was engaged by Rotary as a sub-contractor to supply and install the steam, condensate, chilled water and cooling system at the Davidstow Creamery in Cornwall.

The contract

Clause 28.6 of the contract between the contractor and sub-contractor provided for Systems Pipework, within 4 weeks of completion of the sub-contractor works, to submit to Rotary contractor its proposed final account. The contractor was required to subsequently assess the amount due under the sub-contractor’s final account by reviewing the attached documentation and then notify the sub-contractor within 13 weeks of receipt of the proposed final account. If the notification from the contractor was not disputed by the sub-contractor in writing within 14 days, the notified figure was to be deemed agreed and binding on all parties.

Issues in dispute

On 17 May 2016, Systems Pipework emailed Rotary a revised final account and asked for a review. On 2nd September 2016 Rotary provided Systems Pipework with documents described in the covering letter as the “final account assessment for the works carried out on the above project by your company”. Rotary contended that this constituted a notification under the contract. Systems Pipework disagreed. The main issues identified were:

  1. whether in accordance with clause 28.6 of the agreement, the notification sent by Rotary to Systems Pipework amounted to proper notification of the amount due for payment under System Pipework’s final account; and
  2. whether or not the figure provided within the notification was binding on Systems Pipework.

In reviewing these issues the Technology and Construction Court took the view that clause 28.6 specified that what had to be notified was “the proper amount due for payment in respect of the final account”. The Court took the view that the proper amount due consisted of the total amount due for all the works carried out, along with taking into account any previous payments and “any ongoing retention”. It was decided that the documents and covering letter provided on 2nd September 2016 did not constitute a valid notification.

Neither the documents provided to Systems Pipework nor the covering letter, were titled a notification of an amount due, instead they were both described as a “final account assessment”. This was supported by witness statements provided by Rotary, accepting the documents were a final account assessment only, valuing the entirety of the sub-contract works and not making any reference to a balance of payment due. Additionally, neither document specified a particular sum due, nor was there any reliance shown on clause 28.6 of the contract. The court commented that “if a notice under a certain clause had a draconian effect pursuant to the contract, the notice should make clear that it had been issued under that clause”.

The judgment was therefore found in favour of Systems Pipework and the case is a helpful reminder to us all of the importance of ensuring our payment notices are clear and without ambiguities.

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