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Pay less notice valid despite only cross-referencing basis of sum

Nathalie Burn

In S&T v Grove Developments the Court of Appeal held that Grove’s “pay less notice” was valid despite it only cross-referencing, rather than attaching, a spreadsheet detailing its sum. The court felt this could not give rise to any misunderstanding in the mind of a reasonable recipient standing in the shoes of S&T.

Section 111 (4) of the Housing Grants, Construction and Regeneration Act 1996 (as amended) provides that a notice under this section, commonly termed a pay less notice, “shall specify” both the sum considered to be due and “the basis on which that sum is calculated”.

A pay less notice was issued by Grove to S&T in relation to the construction of a Premier Inn. The sum considered to be due was “£0.00”. The issue was whether the basis of the sum was “specified” in the notice. The notice cross-referenced, rather than attached, a spreadsheet containing detailed calculations which was sent only five days earlier as part of an interim payment application process.

Citing the House of Lords in Mannai, the court construed Grove’s notice objectively, taking account of context and in particular the documents which preceded it. It said that there is no “bright line rule” as to whether reference to other documents is sufficient to “specify” their content in a subsequent document. This will be a question of fact and degree in each case, especially in the context of corporate bodies where different individuals may be involved. The court also quoted the Shorter Oxford English Dictionary’s definition of “specify”, which includes an architect’s specification. Drawing on this definition, it agreed with the first instance judge that it is common practice for an architect’s specification to include documents by reference, and that therefore the developer’s notice did “specify” the basis on which the valuation sum of £0.00 had been calculated.

On the facts, the notice was sent to the same S&T individuals who were dealing with the interim application for payment. They were therefore “bound to be familiar” with the spreadsheet and the notice was held valid and effective.

Comments published on Compact Contract do not necessarily reflect the views of Allen & Overy or its clients.

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