Case Update - withholding notices (still a hot topic)

Withholding notices remain in the spotlight - even under the present provisions of the current Construction Act. If the light of litigation was shone on your withholding notice would it withstand scrutiny?

The case of Windglass Windows Ltd v Capital Skyline Construction Ltd and another 2009 (TCC) concerned an application to enforce an adjudicator's decision. The Court maintained its robust approach of enforcing adjudicator's decisions and rejected the paying party's argument that it had given an effective withholding notice.

Dispute: the sub-contractor, Windglass, made two applications for interim payment. The contractor, Capital, issued two identical withholding notices and withheld payment on the grounds that the application had not been made in accordance with its standard company format. The sub-contractor denied that it was a term of the contract that applications for payment would be in this particular format.

Adjudication: the adjudicator agreed with the sub-contractor that there was no agreed format for applications for payment. He also decided that the contractor had not issued an effective withholding notice under the Scheme for Construction Contract 1998 that applied in this instance and ordered that the sub-contractor should be paid.

Court Proceedings: the contractor failed to pay and enforcement proceedings ensued. The contractor argued that the grounds detailed in a withholding notice did not have to be valid for a withholding notice to be effective. The Court disagreed. S 111 of the Housing Grants Construction and Regeneration Act 1996 is clear: the withholding notice must specify the amount proposed to be withheld and the grounds for so doing. It is insufficient for the paying party to simply state that the application for payment was not in its standard company format.

Comment: the lesson for anyone preparing a withholding notice is clear. A withholding notice must clearly state the amount being withheld and why. The Court also indicated that a paying party will not be allowed to issue an ineffective withholding notice and subsequently seek to correct it in adjudication/legal proceedings.

Advice: in the event that you are considering issuing a withholding notice, our experienced legal team would be happy to assist you in this process. Any queries arising from this article please contact either Robin Gupta or Coriander Davies (T: 0845 209 1425 E: coriander.davies@clarkewillmott.com) who will be happy to assist you.

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