The Scottish Sheriff Appeal Court had three issues to consider:
(i) Was there a valid payment notice?
(ii) Was the valuation in substance, form, and intent a payment notice?
(iii) Was the valuation issued in accordance with the parties’ contract?
This appeal concerned payment for works carried out by Bisset for Tierney in relation to the construction of a luxury dog hotel in Aberdeenshire. The parties’ contract was not subject to the terms of a standard form of building contract but the contract was a “construction contract” for the purpose of the Housing Grants, Construction and Regeneration Act 1996 (“HGCRA”). By the time of the hearing before the Sheriff, two previous valuations had been submitted and paid in full. Bisset’s third valuation was submitted on 17 November 2016.
The payment provisions of the Scheme for Construction Contracts (Scotland) Regulations applied. Here, Tierney (the “payer”) was required to provide the payment notice in accordance with section 110A(2) of the HGCRA. They did not. Where this happens, Bisset (the “payee”) may give such a notice. The notice must specify the sum that the payee considers to have been due at the payment due date and the basis upon which that sum is calculated. Here there was no dispute that the payee’s third valuation specified the sum it considered due. There was a dispute about whether the notice specified the basis upon which that sum was calculated.
The payer criticised the detail provided saying it was restricted to a brief description of the work and the amounts sought. The amounts sought were stated as lump sums. No breakdown was provided; not even between labour and materials. The payee said that their third valuation set out an itemised breakdown of the works carried out or deducted from the original scope with a breakdown of the price charged for each line item. The line items were divided into sections for deductions and additions, the deduction of sums already paid and the application of VAT. This clearly showed how the notified sum was calculated.
Sheriff Principal Turnbull said that a payment notice must specify the sum that the payee considers to be or to have been due at the payment due date and the basis on which that sum is calculated. Here, the line items showed how the amount the payee considered to be due was calculated. Without that detail, there would simply be the amount considered due and that, alone, would not have met the requirements of the section.
“The appellant has fair notice of the amounts claimed and what those amounts relate to ... the contents of the respondent’s third valuation provided a more than adequate agenda for a dispute about valuation.”
If the payer was dissatisfied, then the remedy was to serve a pay less notice. Finally, the payer said that the third valuation was not issued in accordance with the contract, which required valuations to be issued at monthly intervals. The payee issued three valuations in February, June and November 2016. The court noted that the contractual requirement to carry out valuations monthly had no bearing on the payee’s right to give the payer a notice complying with section 110A(3) where the payer has failed to give a section 110(2) notice. The payer was entitled to give such a notice, but was not obliged to. The third valuation was a valid payment notice issued in accordance with the requirements of the parties’ contract.