Strathmore Building Services Limited v CS Greig trading as Hestia Fireside Design

In this recent Scottish case, Lord Hamilton was faced with some interesting points under the Scottish version of the Housing Grants, Construction and Regeneration Act 1996. The case focused on the requirements of a notice to withhold payment under section 111 of the Act.

In this case, the defender, Hestia, had put forward a without prejudice offer in relation to monies outstanding to the pursuers, Strathmore; the defender claimed that liquidated damages and direct costs were due to it for the pursuers' failure to complete on time. The pursuers ignored this offer, and submitted an invoice, which was accepted as their application for payment. The defender telephoned the pursuers' office and left a message with the telephonist stating that the parties were already in dispute and referring to its earlier letter.

The Court had to decide if the telephone message could constitute a notice to withhold payment under section 111 of the Act. The Court decided that it was unmistakable that some form of notice in writing was required, due to the need to specify various matters, and the use of the words "a notice". Even a telephone message that referred to a particular letter of an earlier date would not suffice. Therefore, the telephone call could not be a valid notice.

Further, could the letter, which pre-dated the application for payment, operate as a valid notice to withhold payment? The Court held that it could not. The purpose of section 111 was to provide a statutory mechanism to give a considered response to an application. Such a response could not effectively be made prior to the application itself. It could be possible in some circumstances to refer in writing to a previous written communication concerning withholding of payment, but the Court reserved its opinion on that question. The Court also doubted that a letter offering to compromise in a restricted sum, which did not state that if an application was made, the defenders would withhold payment to that extent, could operate as a valid notice.

Whilst this case will not be binding on English courts, should the same questions be referred to them, it would be surprising if an English judge did not find it persuasive.

For further information on this topic, please contact Clare Collier at [email protected] or on +44 (0)20 7367 3000.