Strathmore Building Services Ltd v Greig

To be effective a notice of intention to withhold payment under section 111 of the Construction Act must be in writing and must be served before the payment application in respect of the proposed withholding is made
 
One of the issues for determination was the status of the letter from the employer's agent disputing the contractor's entitlement to payment and his conversation with the contractor's telephonist on receipt of the contractor's invoice and, in particular, whether the letter or the conversation constituted an effective notice of intention to withhold payment under section 111 of the Housing Grants Construction and Regeneration Act 1996. Section 111(1) provides that a party to a construction contract could not withhold payment after the final date for payment of a sum due under the contract unless he had given an effective notice of intention to withhold payment. Section 111(2) provides that to be effective as a notice of intention to withhold payment under section 111(1), it had to specify the amount proposed to be withheld and the ground for withholding payment and, if there was more than one ground, each ground and the amount attributable to it and the notice had to be given not later than the prescribed final date for payment. Lord Hamilton held that that the letter and the conversation could not in law constitute an effective such notice. An effective notice under section 111 had to be in writing notwithstanding that the words "in writing" were not used in section 111. Firstly 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. Secondly section 115 and, in particular, section 115(6), contemplated that a notice under the Act would be in some form of writing. In addition as a matter of statutory interpretation it was not the case that a written notice of intention to withhold payment could validly be sent earlier than the payment application itself insofar as section 111 clearly envisaged such a notice being a considered response to the payment application. Advice Note Great care must be taken when a notice of intention to withhold payment is served to ensure that it is effective. As well as serving within the prescribed time period, the notice must be in writing. Also the notice must not be served before the payment application that the notice is served in respect of. (4) There was no suggestion that the sum in respect of which the contractor's invoice was issued was not "due under the contract"; and (5) It was doubtful in any event whether the employer's agent's letter could have been an effective notice of intention to withhold payment insofar as notwithstanding that it identified certain sums to be "accounted for prior to any balancing payment being made" and the basis for so doing, it did not unequivocally state that in the event of a further payment application being made, the employer would withhold payment on the basis set out in the letter.
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