| Date | 11 July 2001 |
|
|
| Judgment | S L Timber Systems Limited -v- Carillion Construction Ltd, Outer House Court of Session 27 June 2001 |
|
|
| The Issue | Whether the absence of withholding and payment notices results in payment of the amount claimed without further enquiry. |
|
|
| Implication |
The absence of a Section 110(2) payment notice, or Section 111 withholding notice does not prevent the paying party from arguing that the sum claimed is not due under the terms of the contract. |
printOne of the most difficult areas of interpretation of the Construction Act has involved the requirements for payment notices. Section 110(2) requires the paying party to give a notice not later than 5 days after the date when a payment becomes due, specifying the amount of the payment and the basis on which the amount is calculated. Section 111 provides that a party to a construction contract may not withhold payment after the final date for payment of a sum due under the contract, unless it has given an effective notice of intention to withhold payment. Guidance on the operation of these provisions from the judges of the Technology and Construction Court has, with a few honourable exceptions, been less than helpful. Clear and unequivocal guidance is, however, thankfully now available from the Scottish courts in the case of S L Timber Systems -v- Carillion Construction. S L Timber entered into three contracts for the supply and erection of structural timber framed house kits. Disputes arose over payment under all three contracts, and these were referred to the same adjudicator. In its referral, S L Timber argued that Carillion had failed to give either payment or withholding notices. It argued that the failure to give such notices should result in payment corresponding to its applications, without further justification being necessary. Carillion responded that, irrespective of its failure to send valid notices, S L Timber was not entitled to the payment it sought, because its claims for those monies had no basis in contract. The monies claimed were not "due" under the terms of the contract. In the event, the adjudicator agreed with S L Timber and ordered payment of the full amount of the applications, without further enquiry. He explained that, taking into account the nature of the referral, he was not required, or indeed entitled, to look at the substance of the applications made. He offered the view that, in such circumstances, if he were to determine the proper amount due under the contract, the Act would be rendered largely ineffective. The matter came before the court for enforcement, which was opposed by Carillion. Carillion argued that the adjudicator was in error in concluding that the failure to serve a withholding notice resulted in the sums claimed becoming due. Section 111 applied only in respect of "a sum due under the contract". Carillion contended that the sum claimed was not due under the contract. That issue remained for determination by the adjudicator, even if there was no withholding notice. A withholding notice was not required when it was disputed that the work claimed had not been done at all, or that it had not been properly done, or that it had not been properly valued. Neither was there anything in the Act to suggest that the failure to give a Section 110(2) notice disabled Carillion from maintaining that the sum claimed was not due. Counsel for Carillion added that it was unlikely that the legislator's intent was to treat the absence of a notice as giving rise, even on a provisional basis, to an entitlement for which there was no contractual foundation. Carillion argued that the adjudicator had not simply made an erroneous decision on the question put to him. On the contrary, that error had lead him to decline to exercise the jurisdiction that had been conferred on him, which rendered his decision unenforceable. S L Timber put forward the case that under paragraph 23(2) of the Scheme "the decision of the adjudicator shall be binding on the parties, and they shall comply with it, until the dispute is finally determined" If there had been an error by the adjudicator, any such error he had made was within his jurisdiction, and therefore his decision remained to be enforced. In carefully analysing these submissions, Lord Macfadyen concluded that Carillion were correct. The adjudicator had fallen into error by wrongly combining the requirements of Sections 110 and 111 of the Act. In Lord Macfadyen's opinion, these sections have different effects and the notices which they contemplate have different purposes. Every construction contract requires the giving of the payment notice contemplated in Section 110(2), but there the matter stops. There is no provision that failure to give a Section 110(2) notice has any effect on the right of the party who has failed to dispute the claims of the other party. "A failure to give a Section 110(2) notice does not, in any way or to any extent, preclude dispute about the sum claimed". The adjudicator was also in error in his consideration of the effect of the absence of a Section 111 notice. In Lord Macfadyen's opinion, the absence of a valid notice of intention to withhold payment did not relieve the party making the claim of the ordinary burden of showing that it is entitled under the contract to receive the payment it claims. There was no merit in the adjudicator's concern that this line of argument rendered the 1996 Act largely ineffective. Despite the importance of these very clear errors by the adjudicator, in Lord Macfayden's view these were errors within the adjudicator's jurisdiction. In line with previous authorities this meant that the decision, although erroneous, remained enforceable.
CJ-0127
|
|||
|
© Brewer Consulting |
|||
 |
|||