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Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Stirling v. Westminster Properties Scotland Ltd  ScotCS CSOH_117 (09 July 2007)
Cite as:  ScotCS CSOH_117,  CSOH 117,  BLR 537
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OUTER HOUSE, COURT OF SESSION
 CSOH 117
OPINION OF LORD DRUMMOND YOUNG
in the cause
JOHN STIRLING trading as M & S CONTRACTS
WESTMINSTER PROPERTIES SCOTLAND LIMITED
Defenders: Richardson; Morton Fraser
 In October 2004 the parties entered into a contract for
certain internal and external refurbishment works to be carried out by the
pursuer at premises at
 A company known as M&S Contracts Limited was incorporated
 Works were duly carried out under the contract; invoices were
issued and payments were made in respect of those invoices. On 11 July 2005 Kerr Baxter Associates, the
contract administrators, issued Certificate for Payment No 6, which certified
that the sum of г48,667.50 plus VAT was due for payment to the contractor
within 14 days of the date of issue of the certificate. In that certificate the contractor was
referred to as "M&S Contracts". On
"As you are
aware, we are excessively overdue on Certificate for Payment No 6. This has a valuation date of
The writer of the letter went on to
state that interest at 5% would be charged, and that under clause 4.8 of the
JCT conditions the contractor was entitled to suspend the works in view of the
non-payment. By letter dated 2 September
2005 Longworth Consulting Worldwide Limited, a firm of claims consultants who
were acting on behalf of the pursuer, gave notice to the defenders of the
pursuer's intention to refer to adjudication the defenders' failure to make the
payment due in terms of Certificate No 6.
That letter bore the heading "M&S Contracts Limited v Westminster
Properties Scotland Ltd". Thereafter M&S Contracts Limited served a notice
of adjudication dated
pursuer has raised the present action against the defenders for enforcement of
the adjudicator's decision. In their
defences the defenders contend that no dispute existed between the present
parties prior to the notice of adjudication served by the pursuer on
material facts were agreed between the parties in a joint minute, and counsel
on both sides made it clear that they were anxious that the action should be
resolved at debate. For the pursuer,
counsel contended that I should grant decree de
for the pursuer submitted that a dispute between the parties in relation to the
sums certified in Certificate for Payment No 6 arose prior to the start of the
adjudication. It might have arisen as
soon as the 14-day period referred to in the certificate expired, or possibly
shortly thereafter. If that were not so,
the dispute arose at a reasonable period following the expiry of the 14-day
period; that would certainly have occurred before the notice of adjudication
was served on
 The meaning of the expression "dispute or difference" was considered in Amec Civil Engineering Ltd v Secretary of State for Transport,  1 WLR 2339. In that case, which concerned provisions in the ICE Conditions of Contract rather than adjudication provisions in the JCT forms, the judge at first instance, Jackson J., reviewed the authorities on the matter and set out the law in a series of numbered propositions; these were accepted as accurate when the matter reached the Court of Appeal, and the judges of the latter court made it clear that they accepted those propositions, subject only to certain additional observations. The propositions are found stated in the opinion of May LJ at paragraph , and so far as material are as follows
"1. The word 'dispute'... should be given its normal meaning. It does not have some special or unusual meaning conferred upon it by lawyers.
2. Despite the simple meaning of the word 'dispute', there has been much litigation over the years as to whether or not disputes existed in particular situations. This litigation has not generated any hard-edged legal rules as to what is or is not a dispute. However, the accumulating judicial decisions have produced helpful guidance.
3. The mere fact that one party... notifies the other party... of a claim does not automatically and immediately give rise to a dispute. It is clear, both as a matter of language and from judicial decisions, that a dispute does not arise unless and until it emerges that the claim is not admitted.
4. The circumstances from which it may emerge that a claim is not admitted are Protean. For example, there may be an express rejection of the claim. There may be discussions between the parties from which objectively it is to be inferred that the claim is not admitted. The respondent may prevaricate, thus giving rise to the inference that he does not admit the claim. The respondent may simply remain silent for a period of time, thus giving rise to the same inference.
5. The period of time for which a respondent may remain silent before a dispute is to be inferred depends heavily upon the facts of the case and the contractual structure. Where the gist of the claim is well known and it is obviously controversial, a very short period of silence may suffice to give rise to this inference....
6. If the claimant imposes upon the respondent a deadline for responding to the claim, that deadline does not have the automatic effect of curtailing what would otherwise be a reasonable time for responding. On the other hand, a stated deadline and the reasons for its imposition may be relevant factors when the court comes to consider what is a reasonable time for responding.
7. If the claim as presented by the claimant is so nebulous and ill-defined that the respondent cannot sensibly respond to it, neither silence by the respondent nor even an express non-admission is likely to give rise to a dispute for the purposes of arbitration or adjudication".
May LJ, at paragraph , commented that the expression "dispute or difference" seemed to be less hard-edged than "dispute" alone. In addition, he commented that in many instances it will be quite clear that there is a dispute. If the claims are major, it is likely that they will be contested and arbitration may well be probable and necessary. In such cases commercial good sense did not suggest that the clause in question should be construed with legalistic rigidity so as to impede the parties from starting the arbitration proceedings. That tended to favour an inclusive interpretation of what amounted to a dispute or difference.
 Some assistance in the construction of the word "dispute" is found in Fastrack Contractors Ltd v Morrison Construction Ltd,  BLR 168, where Judge Thornton QC stated (at paragraph ) that a "dispute" is "whatever claims, heads of claim, issues, contentions or causes of action are then in dispute which the referring party has chosen to crystallize into an adjudication reference". If a jurisdictional challenge is mounted, it is necessary to consider what was actually referred, and that involves a careful characterization of the dispute referred. That exercise is not to be determined solely by the wording of the notice of adjudication, since that document, like any commercial document having contractual force, requires to be construed against the underlying factual background. At paragraph  of the same case Judge Thornton stated that a "dispute" can only arise once the subject-matter of the claim, issue or other matter has been brought to the attention of the opposing party and that party has had an opportunity of considering and admitting, modifying or rejecting the claim or assertion.
expression "dispute or difference" occurs in forms of construction contract
that, with certain modifications, are in use both in
 The first contention for the pursuer was that a dispute between the present parties over the sum certified in Certificate No 6 arose on or shortly after the expiry of the 14-day period referred to in the certificate. The origin of that 14-day period is found in clause 4 of the contract conditions. Clause 4.2.1 provides that the contract administrator must, at intervals of four weeks, certify progress payments of 95% of the total value of the work executed and the value of materials and goods reasonably and properly brought upon the site. The clause continues with a statement that "The final date for payment by the Employer of the amount so certified shall be 14 days from the date of issue of the certificate". Clause 4.4 provides that, not later than five days after the issue of a certificate of payment pursuant to clause 4.2.1, the employer is to give a written notice to the contractor specifying the amount of the payment proposed to be made in respect of the amount stated as due in the certificate. Not later than five days before the final date for payment of the amount that is due the employer is authorized to give a written notice to the contractor specifying any amount proposed to be withheld or deducted from that notified amount, the grounds for such withholding or deduction, and the amount of the withholding or deduction attributable to each ground. If no such notice is given by the employer, the employer must pay the amount stated as due in the certificate.
 Counsel for the pursuer submitted that clauses 4.2 and 4.4 impose a tight contractual timetable which permits the employer to state by notice what sum it was prepared to pay or withhold. If there is such a contractual structure, he submitted, there is no need for the contractor to make a claim as such. The question of whether the sum certified was payable arose as soon as the certificate was issued by the contract administrator, because at that point the employer had 14 days to consider its position; if the employer did not give notice specifying a proposed withholding or deduction, with grounds, it was obliged to pay the amount stated in the certificate. Consequently the case was not one where the employer could simply sit on the matter; if no action is taken within the 14-day period the sum certified becomes due.
 The pursuer's argument on this point was attractively presented, but I am of opinion that it reads too much into the terms of clauses 4.2 and 4.4. The purpose of those clauses is to provide a mechanism for interim certification of payments, and in so doing to provide a mechanism for identifying disputes as to the amount that is actually due following each certificate. The critical point about that mechanism, however, is that it involves the giving of a written notice specifying the amount that the employer proposes to pay and a further written notice specifying any amount proposed to be withheld or deducted, together with the grounds for such withholding or deduction. Thus, on the contractual scheme, any disagreement that emerges as to the parties' respective rights and obligations should appear in writing. It follows that the mere failure to pay is not enough to give rise to a "dispute or difference". Such failure could be due, for example, to lack of funds or a simple administrative oversight or a communication's going astray. In these circumstances it could not be said that there was anything of the nature of a disagreement between the parties as to their respective rights and obligations.
matters progressed, however, the defenders failed to dispute the amount due in
Certificate No 6, whether using the contractual mechanisms or otherwise, and
failed to make payment of that amount.
Importantly, they failed to give any reason for their non-payment. Correspondence passed, albeit in the name of
the company; I deal with the significance of this feature in the following
paragraphs. In that correspondence,
however, neither the defenders nor their contract administrators gave any
indication that they were unable to pay through, for example, lack of funds, or
had simply overlooked the need to pay.
The fact that correspondence passed is significant, because it gave the
defenders a good opportunity to explain their failure to pay, and they failed
to make use of that opportunity. It also
tended to eliminate the possibility that a letter had simply gone astray. The contractual structure is significant to
this extent: as explained in the preceding paragraphs, clauses 4.2 and 4.4 were
intended to identify any problems arising out of a certificate within a fairly
short time, and if no such problems are identified but payment is not made the
natural inference is that the employer disputes any obligation to make the
payment. In the whole circumstances, I
am of opinion that the inference must be drawn that a genuine disagreement
existed between the parties as to their respective rights and obligations
following the issue of Certificate No 6.
The pursuer contended that the full amount stated in the certificate was
due; the defenders disputed that that sum was due. In the light of the correspondence, I am of
opinion that such an inference should have been drawn by the beginning of
September 2005; at the latest, I consider that it must have been drawn by
correspondence in July, August and September 2005 passed generally in the name
of the company, M & S Contracts Limited.
Thus the invoice for the sum due under Certificate No 6, issued on
 If the doctrine of separate corporate personality is applied with its full rigour, the defenders' argument is clearly correct. I am nevertheless of opinion that this is too simplistic an approach. In commercial practice, it is not unusual to discover that the niceties of the doctrine of separate corporate personality are ignored. Where, for example, a contract has been concluded in the name of an individual trader but the individual then transfers his business to a company, it is frequently found that correspondence after the transfer proceeds in the name of the company rather than the individual, despite the fact that it is the individual who is the contracting party. In such a case, if the correspondence is construed literally as proceeding in the name of the company, the result is likely to be nonsensical, as the company is not a party to the contract to which the correspondence obviously relates. That contract is in the name of the individual. In these circumstances the only sensible inference will normally be that the company, in conducting the correspondence, is acting as an ad hoc agent for the contracting party, the individual. That is in my opinion in accordance with the obvious intention of the parties. A similar inference can readily be drawn in cases involving a group of companies where a contract is in the name of one company but correspondence is conducted by another company in the group. An analysis in terms of ad hoc agency allows the contracting party to remain in place as the subject of the contractual rights and obligations; at the same time the correspondence is allowed to bear the meaning that was obviously intended by the parties, as relating to the rights and obligations arising under that contract. This analysis is, however, subject to one important limitation: it applies to correspondence, invoices, contractual notices and the like, where no special formality is expected; where, however, matters enter a formal process such as litigation or adjudication, formality is expected and the correct party must be named. I return to this matter at paragraph  below.
 Such an analysis is in my opinion entirely in accordance with the general principles that apply to the construction of documentation issued under commercial contracts. The present case relates to the interpretation of letters and other documents that have been sent in order to assert or discuss the parties' rights and obligations under a contract. I consider that the principles applicable to the construction of such documents are essentially the same as those that apply to the construction of the contract itself. As with the contract, such documentation must be construed objectively, according to the standard of a reasonable third party. It must be construed in context. In construing post-contractual documentation, the most important feature of the context will normally be the contract itself, because such documentation is intended to assert, implement, debate or otherwise deal with the parties' rights, obligations, powers and liabilities under that contract. The context may, however, include the surrounding circumstances, for the purpose of discovering the facts to which the documentation refers and its commercial objectives. The principle here is essentially the same as that applicable to the construction of a contract itself, as laid down in such cases as Charrington & Co Ltd v Wooler,  AC 71, at 80 per Lord Kinnear and at 82 Lord Dunedin, Prenn v Simmonds,  1 WLR 1381; Reardon Smith Line Ltd v Hansen-Tangen,  1 WLR 989, Bovis Construction (Scotland) Ltd v Whatlings Construction Ltd, 1994 SC 351, at 357 per Lord President Hope, Bank of Scotland v Dunedin Property Investment Co Ltd, 1998 SC 657, at 665 per Lord President Rodger, at 670-671 per Lord Kirkwood, and at 676-677 per Lord Caplan, Waydale Ltd v DHL Holdings (UK) Ltd (No 2), 2002 SLT 224, at 229 per Lord Hamilton, and Glasgow City Council v Caststop Ltd,, 2002 SLT 47, at 56 per Lord Macfadyen. The contract and the correspondence must be construed as a totality. As with a commercial contract, post-contractual correspondence and other documentation should be given a commercially sensible construction; that is an example of the wider rule that construction that yields a reasonable result should be preferred over one that does not: Glasgow City Council v Caststop Ltd, supra, at 56-57 per Lord Macfadyen.
 For present purposes the most important of these principles is the need to construe post-contractual correspondence and other documentation in the context of the contract to which it relates. In the light of that consideration, the most natural interpretation of such documents is that they relate to the rights and obligations that arise under that contract, and therefore to the parties to that contract, since they are the only persons who have rights and obligations under the contract. On that basis, if a letter proceeds in the name of a company or individual who is not a party to the contract, the context strongly indicates that it is meant to relate to the rights and obligations of the contractual parties. The most straightforward means of achieving that result is through the concept of ad hoc agency. That result is further supported by the principle of objective construction; in my opinion a reasonable third party who examines a letter proceeding in the name of a non-party would naturally construe it as relating to the parties to the contract, provided that the contract itself was sufficiently clearly identified in the letter. Further support for the same result may be found in the surrounding circumstances; where the writer of the letter is obviously connected with the party to the contract, as with a company that has succeeded to a sole trader or two companies within the same group, the inference is that one is writing on behalf of the other. Finally, the inference that the letter or other documents is issued on behalf of the contracting party is strongly supported by the principle that documentation should be given a commercially sensible construction. If a letter that obviously relates to a contract is not construed as relating to the parties to that contract, the result is likely to make no sense in either legal or commercial terms.
foregoing analysis must in my opinion apply to the documents that were issued
in July and August 2005. Thus the
 At this stage too, if a claim is intimated or presented in the name of the wrong party, formal objection would normally be taken, whether through a plea of no title to sue or otherwise; that in fact happened in the present case, since by letter dated 22 September 2005 to the adjudicator the defenders' agent pointed out that the company had been incorporated after the contract was concluded and hence could not be a party to the contract. Before litigation or adjudication is threatened, however, there is no obvious reason other than a concern for strict accuracy for the recipient of a letter or other document to point out that it proceeds in the name of the wrong party, provided that there appears to be some sort of relationship between the person responsible for the letter and the other party to the contract. That explains why contractual correspondence before the stage of a formal claim is frequently allowed to proceed in the name of the wrong party. I should add that there are cases where a party to a contract sues on the contract in respect of losses suffered by another person to whom, for example, the pursuer has transferred the subject matter of the claim. In such cases the pursuer can in a sense be regarded as suing on behalf of that other party, but he clearly has title to do so because he is the party to the contract; indeed, that is why the other party cannot sue. Such cases are accordingly quite different from the situation presently under discussion.
follows that the writer of Longworth Consulting's letter of
 For the
defenders it was submitted that, in order to convert a contractual entitlement
into a "dispute", it was necessary both for the entitlement to be communicated
to the other party and for it to be made clear, by words, conduct or otherwise,
that it was not accepted that there was any such entitlement. In the present case, it was submitted, the
pursuer did not in terms communicate his entitlement to the sums specified in
Certificate No 6 prior to
 I do not doubt that, for a "dispute" to arise, it is necessary that a contractual claim should be communicated to the other party and that the other party should, expressly or impliedly, make it apparent that he rejects the claim in whole or in part. Whatever the form in which the parties' attitudes are conveyed, the substance of the matter must always be that there is a disagreement between the parties as to some aspect of their contractual rights and duties. In the present case, I am of opinion that the existence of a disagreement as to the pursuer's entitlement under Certificate No 6 was apparent by the beginning of September 2005, or at latest as soon as the adjudication proceedings in the name of the company came to an end on 24 September. The pursuer had asserted a claim, and the defenders, despite the contractual time scale and the documents sent to them, had failed to make payment and had failed to advance any reason to explain such non-payment. In my opinion that is sufficient for the inference that the defenders disputed the pursuer's claim. If that were not so, a party could adopt the tactic of simply failing to respond to repeated invoices, claim letters and the like, and thus substantially delay any reference to adjudication. No doubt an ultimatum procedure could be used, but I do not think that there should be any need to go as far as that; silence for a sufficient period in the face of a letter of claim can be sufficient to yield the inference that the claim is disputed. I am conscious that adjudication is a provisional procedure. Nevertheless, one of its major purposes is to ensure contractual cash flow, and that could easily be frustrated if the courts were to impose unduly strict conditions on the raising of adjudication proceedings.
for the defenders also relied on the fact that documents such as the invoice of
argument is ingenious, but in my opinion it must be rejected. The fact that the contractual documentation
in July and August 2005 proceeded in the name of the company can in my view be
readily explained by the notion of ad hoc
agency, as explained above at paragraphs -. The essential point is that the pursuer, not
the company, was the contracting party.
If the documents are treated as proceeding from the company, that can
only make sense if the company is substituted for the pursuer as the
contracting party. That would require
novation, however, and nothing of the sort is averred. Moreover, novation involves the substitution
of one contracting party for another in respect of both rights and
obligations. That normally requires the
clear agreement of the other party to the contract. Such agreement is not to be inferred
lightly. It is, in any event, contrary
to the agreed facts in the present case.
When adjudication proceedings were raised in the name of the company,
the defenders, by letter to the adjudicator dated
developing his argument, counsel for the defenders referred to a number of
specific features of the correspondence and other documentation; these, he
said, indicated that the documents in question were truly the documents of the
company, not the pursuer. He referred to
the sequence of invoices that culminated in that of
 None of these matters seems to me to alter the obvious inference that the company acted as agent for the pursuer as an individual. The change in the invoices and VAT number can readily be explained by the fact that the company had begun to act as agent for the pursuer in respect of the contract. It is a matter of agreement that all of the first five invoices were paid by cheques issued to either M&S Contracts (the first three payments) or M&S Contracts Ltd (the fourth and fifth payments). That seems to me to indicate that the defenders simply accepted the fact that the administration of the contract was being carried out by the company. The fact that the cheques were paid into the company's bank account was a matter of mere administrative convenience; in any event that would not necessarily be known by the defenders. The fact that the company's vans (and no doubt its employees) were used to perform the contract, and the fact that some invoices from suppliers and subcontractors were issued to the company, are readily explained by the concept of ad hoc agency. The same is true of the letter to the Health and Safety Executive. So far as the insurance is concerned, the only document that was available was a letter from the insurance broker to the defenders' contract administrators. The policy itself was not available. Thus it is impossible to know what the precise scope of the insurance was. In any event, if the contract works were in fact being carried out by the company as agent for the pursuer, it might well be appropriate that the insurance was in the company's name. Without the policy it is impossible to be certain. None of the matters relied upon by counsel can in my view be considered as an acceptance that the contract had been novated to the company. Perhaps the strongest point for the defenders is the fact that the original adjudication was raised in the name of the company. That is explained, however, by the simple fact that either the pursuer or Longworth Consulting made a mistake. In these circumstances the argument that the pursuer was barred from asserting that he was the principal seems misplaced; if the company were to act as principal the defenders' agreement would be required, and there is no hint that such consent was either asked for or given.
 For the
foregoing reasons I am of opinion that a dispute or difference existed between
the present parties prior to the service of the notice of adjudication on