Aedas Architects Limited v Skanska Construction UK Limited
Case reference:
[2008] CSOH 64
Thursday, 17 April 2008
Key terms: Withholding notices - Set-off - Section 111 of the HGCRA
The dispute arose out of works done on contracts to renovate several schools in Midlothian. The Pursuer sought periodical payments but was met with refusal as the Defender claimed that it had large and on-going contra set-offs which were much more than what the Claimant was pursuing.
The Pursuer argued that where monies are withheld, the notice ("counter-notice") must specify an amount, grounds and then an attribution to each ground in order to be effective under section 111 of the Housing Grants, Construction and Regeneration Act 1996 ("the Act"). He claimed that though the Defender had issued counter-notices, none of them were effective. However, the Defender argued that the counter-notices should not be subjected to a fine, textual analysis. They were not addressed to lawyers, but rather contract managers and others who were aware of what was happening on site in an ongoing contract concerning several places. The Defender claimed that the grounds and amounts had been specified and that was therefore enough.
The issue before Lord McEwan was whether or not the counter-notices specified in sufficient detail, the grounds for set-off. Though the Melville Dundas case was referred to, he held that it was not relevant for present purposes. Lord McEwan did however accept that the Melville Dundas case does "stress the need for clarity when interim payments are withheld. That is set against the background of the machinery of adjudication. Section 111 of the Act is also intended to strike at "set-off abuse" and promote confidence in "cash flow". He stated that both the Melville Dundas case and the Reinwood Ltd v Brown & Sons Ltd case reinforce that on interim payments, parties should know in advance where they stand.
Lord McEwan appreciated the problem which is presented to both sides: the Pursuer wished the clarity demanded by the Act, and the Defender, who say that they have a substantial and on-going set-off, may not want to part with any money. "In any commercial matter there is always the risk of insolvency or delays and cash flow difficulties."
Given that this was an issue of summary decree, the judge applied the test formulated by the House of Lords in Henderson v Nova Scotia Limited 2006 SC (HL) 85, and was unable to say that the defence was bound to fail. He did not think that the matter could be properly disposed of, only on the evidence of counter-notices. Issues of fact could arise and this would allow evidence of meetings and conversations to explain the letters and the events surrounding the notices. In any event, it was held that the documents themselves were effective under section 111. Sufficient attribution was made against five of the enumerated grounds. That in itself was enough to find that it cannot be said that the defence was bound to fail.
The Pursuer argued that where monies are withheld, the notice ("counter-notice") must specify an amount, grounds and then an attribution to each ground in order to be effective under section 111 of the Housing Grants, Construction and Regeneration Act 1996 ("the Act"). He claimed that though the Defender had issued counter-notices, none of them were effective. However, the Defender argued that the counter-notices should not be subjected to a fine, textual analysis. They were not addressed to lawyers, but rather contract managers and others who were aware of what was happening on site in an ongoing contract concerning several places. The Defender claimed that the grounds and amounts had been specified and that was therefore enough.
The issue before Lord McEwan was whether or not the counter-notices specified in sufficient detail, the grounds for set-off. Though the Melville Dundas case was referred to, he held that it was not relevant for present purposes. Lord McEwan did however accept that the Melville Dundas case does "stress the need for clarity when interim payments are withheld. That is set against the background of the machinery of adjudication. Section 111 of the Act is also intended to strike at "set-off abuse" and promote confidence in "cash flow". He stated that both the Melville Dundas case and the Reinwood Ltd v Brown & Sons Ltd case reinforce that on interim payments, parties should know in advance where they stand.
Lord McEwan appreciated the problem which is presented to both sides: the Pursuer wished the clarity demanded by the Act, and the Defender, who say that they have a substantial and on-going set-off, may not want to part with any money. "In any commercial matter there is always the risk of insolvency or delays and cash flow difficulties."
Given that this was an issue of summary decree, the judge applied the test formulated by the House of Lords in Henderson v Nova Scotia Limited 2006 SC (HL) 85, and was unable to say that the defence was bound to fail. He did not think that the matter could be properly disposed of, only on the evidence of counter-notices. Issues of fact could arise and this would allow evidence of meetings and conversations to explain the letters and the events surrounding the notices. In any event, it was held that the documents themselves were effective under section 111. Sufficient attribution was made against five of the enumerated grounds. That in itself was enough to find that it cannot be said that the defence was bound to fail.