Adjudication
Strathmore Building Services Ltd v Colin Scott Greig (2000) Crt Session

© Daniel Atkinson 2001       19 January 2001

The scottish decision in Strathmore Building Services Ltd v Colin Scott Greig (2000) Crt of Session deals with the Notice of Withholding under the Housing Grants, Construction and Regeneration Act 1996. The main issue whether such notices are required to be in writing and whether a notice issued before the application for payment are effective.

The contract was in the form of the Scottish Building Contract with Contractors Design (July 1997 Revision) subject to certain amendments and modifications. Strathmore undertook to construct for Colin Scott a showroom, office block and workshop at East Lothian. Strathmore commenced and ultimately completed the works. Colin Scott maintained that Strathmore failed to complete by the extended completion date.

By August 1999 various interim payments had been made to Strathmore but a balance remained unpaid. On 17^th August 1999 Colin Scott wrote to Strathmore stating that a balance payment of £40,379.40 was outstanding but that it was unwilling to settle this amount unless due consideration was made of the cost incurred as a result of extensive delays in completing the works and subsequent disruption suffered following the threat of statutory action by building control. Two sums were put forward as being required to be taken into account. The first was £10,408 liquidated damages and the second £28,136 for direct costs incurred. Colin Scott proposed on a without prejudice basis to make a payment of £4,971 in full and final settlement of its obligations under the contract. Strathmore did not respond to the proposal.

On 22^nd November 1999 Strathmore delivered to Colin Scott an invoice for the sum of £41,277.05 inclusive of VAT in respect of monies claimed by them under the contract. Colin Scott did not respond in writing to that invoice. It was Colin Scott’s case that on the date that he received the invoice he telephoned Strathmore’s office and on being told that the individual responsible for the contract was unavailable, left a message for him with Strathmore’s telephonist. The message was that the parties were already in dispute regarding further payment and referred to Colin Scott’s previous letter of 17^th August.

In February 2000 Strathmore raised an action for payment of the sum of £41,277.05. Colin Scott pleaded that the action should be sisted for arbitration.

The issue for determination was whether there existed a dispute or difference between the parties which required the court to sist the action to arbitration in respect of that dispute or difference. Lord Hamilton held that there was Scottish authority binding on him that the court, before sisting for arbitration, must examine the matter raised and satisfy itself that there was a question which amounted to an arbitral dispute. The required examination may involve the court itself considering arguments on legal issues, including the construction of the relevant contract. That consideration may result in the court holding that an argument on interpretation advanced by one party is so clearly lacking in substance that there is no question "truly raised" for an arbitor to decide. The courts view of interpretation may also lead to the conclusion that a claim to withhold monies may, in whole or in part, is so ill founded that there is no real dispute for arbitration.

Colin Scott raised two matters of statutory interpretation. The first was whether an effective notice within the meaning of Section 111 was required to be in writing. It was held that although the words "in writing" were not expressly used, that it unmistakably appeared that writing in some form was required. This was so having regard not only to the language of Section 111 itself, including the use of the indefinite article ("an effective notice", "a notice") and the requirement to "specify" particular matters, but also to the language of Section 115 and in particular (section 115(6)) which contemplated that a notice under the Act would be in some form of writing. It was held that a telephone message, even one referring to a particular letter of earlier date, would not suffice.

The second matter raised was whether a communication in writing sent earlier than the making of the relevant application could be an effective notice for the purpose of section 111. It was argued by Colin Scott that section 111(2) provided that any notice must be given not later than a particular time, but it did not provide that it was required to be given after any particular time. The letter of 17^th August, sent prior to the invoice of 27^th November, was arguably a notice of intention to withhold payment within the meaning of section 111.

This was not accepted. It was held that the purpose of section 111 was to provide a statutory mechanism on compliance with which, but only on compliance with which, a party otherwise due to make a payment may withhold such payment. It clearly envisaged a notice giving under it being a considered response to the application for payment, in which response it was specified how much of the sum applied for it was proposed to withhold and the ground or grounds for withholding any amounts. It was held that such a response could not effectively be made prior to the application itself being made. It may be that the matter of withholding payment of any sum which might in the future be applied for had previously been raised. In such circumstances a notice in writing given after receipt of the application but which referred to or incorporated some earlier written communication might suffice for the purpose although Lord Hamilton reserved his opinion on that matter. It was held that such an earlier written communication, whether alone or referred to subsequently in an oral communication, could not suffice. This as a matter of statutory interpretation was unmistakably the case.

It was held therefore that Colin Scott had not complied with section 111 and that therefore no question for arbitral decision truly arose.

Lord Hamilton seriously doubted in addition, whether the letter of 17^th August was in any event in its terms a notice of intention to withhold payment. While it identified certain sums which were contended to be accounted for prior to any balancing payment being made, and identified the basis for doing so, it was in effect an offer to compromise in a restricted sum. It in no way unequivocally stated that in the event of a further application for payment being made by Strathmore that Colin Scott would withhold payment to the extent and on the basis referred to it in the letter. However this matter was not fully argued so that Lord Hamilton placed no reliance on it for the purposes of his decision. Lord Hamilton also stated that he had proceeded on the basis as conceded by the parties that a question of interpretation and application to the circumstances of the 1996 Act could give rise to a "dispute or difference as to the construction of this contract or any matter or thing of whatsoever nature arising thereunder or in connection therewith", which was the relevant wording of the arbitration clause. He was not however to be taken as accepting that that concession was correctly made.