Adjudication
SL Timber Systems Limited v Carillion Construction Limited (27 June 2001) Court of Session

© Daniel Atkinson 2001 12 August 2001

In SL Timber Systems Limited v Carillion Construction Limited (27 June 2001) Court of Session Lord Macfadyen held that Sections 110(2) and 111 have different effects and the notices which they contemplate have different purposes. Section 110(2) prescribes a provision which every construction contract must contain. Section 110(3) deals with the case of a construction contract that does not contain the provision required by section 110(2) by making applicable in that case the relevant provision of the Scheme, namely paragraph 9 of Part 11. By one or other of these routes every construction contract will require the giving of the sort of notice contemplated in section 1 10(2). But there the matter stops. Section 110 makes no provision as to the consequence of failure to give the notice it contemplates. The important point is that there is no provision that failure to give a Section 110(2) notice has any effect on the right of the party who has so failed to dispute the claims of the other party. A Section 110(2) notice may, if it complies with the requirements of Section 111, serve as a Section 111(1) Notice. But that does not alter the fact that failure to give a section 110(2) notice does not, in any way or to any extent, preclude dispute about the sum claimed.

The words "sum due under the contract" cannot be equated with the words "sum claimed". The section is not concerned with every refusal on the part of one party to pay a sum claimed by the other. It is concerned, rather, with the situation where a sum is due under the contract, and the party by whom that sum is due seeks to withhold payment on some separate ground.

A dispute about whether the work in respect of which the claim was made had been done, or about whether it was properly measured or valued, or about whether some other event on which a contractual liability to make payment depended had occurred, went to the question of whether the sum claimed was due under the contract, and therefore did not involve an attempt to "withhold ... a sum due under the contract”, and therefore did not require the giving of a notice of intention to withhold payment. Where there was no dispute that the work had been done and was correctly measured and valued, or that the other relevant event had occurred, but the party from whom payment was claimed wished to advance some separate ground for withholding the payment, such as a right of retention in respect of a counterclaim, that would constitute an attempt to "withhold ... a sum due under the contract",and would require a notice of intention to withhold payment.

There are some circumstances in which it is difficult to be clear as to whether the position which the party against whom the claim has been made wishes to adopt is to be analysed as disputing that the sum is due under the contract or as seeking to withhold a sum due under the contract. It was an extreme position to regard any and every attempt to dispute a claim made under a construction contract for the purposes of section 111 as an attempt to "withhold" payment, and therefore as requiring a notice of intention to withhold payment.

Lord Macfadyen stated that the decided cases were not wholly consistent. The clearest support for the position above was to be found in Woods Hardwick Limited per His Honour Judge Thornton QC at paragraphs 9 and 10. The clearest indication to the contrary was to be found in Northern Developments (Cumbria) Limited per His Honour Judge Bowsher QC at paragraph 29. Lord Macfadyen stated that if Judge Bowsher is to be understood to have meant that, without a Section 111 notice, there can be no dispute of any sort as to whether the sum claimed is properly due, His Honour to that extent took too broad a view of the effect of Section 111.

The absence of a timeous notice of intention to withhold payment does not relieve the party making the claim of the ordinary burden of showing that he is entitled under the contract to receive the payment he claims. It remains incumbent on the claimant to demonstrate, if the point is disputed, that the sum claimed is contractually due. If he can do that, he is protected, by the absence of a Section 111 notice, from any attempt on the part of the other party to withhold all or part of the sum which is due on the basis that some separate ground justifying that course exists. If the section did require a notice of intention to withhold payment as the foundation for a dispute as to whether the sum claimed was due under the contract, it would be relatively straightforward for the party disputing the claim to give such a notice. But that consideration does not justify ignoring the fact that the section is expressed as applying to the case where an attempt is made to withhold a sum due under the contract, and not as applying to an attempt to dispute that the sum claimed is due under the contract. There is no difficulty for an adjudicator in reaching a provisional determination of a dispute as to whether the sum claimed is due under the contract. That is what the adjudicator would require to do if the party disputing the claim on the basis that the sum claimed was not due under the contract gave a notice of intention to withhold payment on that ground.