Strathmore Building Services Ltd v CS Greig trading as Hestia Fireside Design 2

A valid notice to withhold payment must be given in writing, and should not be served prior to the application for payment to which it relates

Lord Hamilton, Outer House, Court of Session

18 May 2000

This case focused on the requirements of a notice to withhold payment under section 111 of the Act, under the standard form of contract, JCT Works Contractors Design 1998, Scottish edition.

In this case, H had put forward a without prejudice offer in relation to monies outstanding to S. H claimed that liquidated damages and direct costs were due to it for the S's failure to complete on time. S ignored this offer, and submitted an invoice, which was accepted as their application for payment. H telephoned S's 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.

A valid notice to withhold payment must be given in writing, and should not be served prior to the application for payment to which it relates.

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