The latest decision regarding payment in construction contracts comes from the Scottish case of ATG Services (Scotland) Ltd v Ogilvie Construction Ltd [2024]. Here, Ogilvie was ordered to pay ATG’s invoice, even where the application for payment was not submitted in accordance with the requirements of the sub-contract.
Background
ATG was a sub-contractor appointed by Ogilvie to deliver the groundworks package as part of the construction of a housing and care facility at Newmills Road, Dalkeith.
During the sub-contract works ATG submitted an interim application for payment to Ogilvie in the sum of £1,081,254.83 (exc. VAT). A dispute arose after Ogilvie failed to issue a valid pay less notice or pay the notified sum by the final date for payment. ATG referred the dispute to adjudication.
The adjudication
Whilst Ogilvie accepted that the application for payment had been received, they submitted it was invalid because it had not been served in accordance with the requirements of the sub-contact. The sub-contract required the parties to serve notices by first class recorded delivery to the address stated within the sub-contract (or such other address as might be notified, or by fax). However, it had been further agreed between the parties at a pre-contract meeting that payment applications issued to Ogilvie would be to two specified email addresses.
In contrast, ATG averred that the payment was valid. In support, ATG relied on the decision in Jawaby Property Investment Ltd v Interiors Group Ltd under English law. This decision confirmed that a party could rely on an adopted course of dealings when considering whether another party had waived the right to rely on terms prescribed by the contract. Applying this principle, ATG argued that the application for payment was valid even though it had been issued to a different email address, as Ogilvie had previously treated prior applications for payment as valid even though they had been issued in the same way.
The adjudicator agreed with ATG. He decided that ATG had in fact, submitted a valid application for payment. Absent a valid pay less notice, the sum claimed in ATGs application was the notified sum. Ogilvie was ordered to pay this sum in full within seven days of the date of the adjudicator’s decision.
When Ogilvie failed to pay, ATG commenced proceedings to enforce the adjudicator’s award.
Defence
In defending the claim, Ogilvie argued that the adjudicator was wrong to base his decision on the English law principle established by Jawaby, when there was no equivalent principle in Scottish law. Further, Ogilvie alleged that the adjudicator had simply gone off “on a frolic of his own,” in either deciding that English law applied to the contract, that English law was the same as Scottish law, or that there was a Scottish law equivalent to the Jawaby principle.
Decision
However, Lord Sanderson disagreed and stated that Ogilvie’s defence “[was] entirely without merit.”
He held that the adjudicator had not gone off on a frolic of his own, nor was he wrong to consider English law in reaching his conclusion when it was clear from the submissions that it was precisely the principle upon which ATG relied. Lord Sanderson concluded that Ogilvie had had ample opportunity to advance arguments in defence of that principle as part of the adjudication. Any contention otherwise amounted to a frivolous defence – exactly the kind of unreasonable behaviour which, under the Scottish case of McKie v. Scottish Ministers, justified an award against Ogilvie for expenses.
Summary
Whilst decided under Scottish law, this case nevertheless provides a useful reminder of the importance of valid payment and pay less notices in challenging applications for payment. Where such notices are not issued, the decision highlights the “pay now argue later” principle which underpins the payment provisions in the Construction Act.
Lord Sanderson was clear that ignoring these reminders and mounting “frivolous defences to avoid payment” constitutes unreasonable behaviour. This could give rise to adverse cost consequences.
If you have a question concerning payment under your contract, please do not hesitate to contact a member of our Construction & Engineering Team who will be happy to help.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at October 2024.