The law

The Construction Act 1996 provides that a paying party must give notice to the payee of its intention to withhold payment of any sums due under a construction contract. Section 111(2), stipulates that for a notice to be effective it must specify the amount proposed to be withheld and the ground(s) for withholding payment.

Case study: Windglass Windows Ltd v Capital Skyline Construction Ltd

Capital engaged Windglass to supply and install windows. Windglass made two applications for payment totalling £166,000 plus VAT. Capital responded to each application with a letter explaining that its financial director had rejected the applications because they were not in the company’s standard format. Capital said the notices were effectively withholding notices and therefore they did not have to make payment.

Windglass referred the dispute to adjudication where the adjudicator awarded Windglass £149,400 plus VAT.  

Capital refused to pay and Windglass applied to the court to enforce the decision. The judge held that a withholding notice must comply with section 111 of the Construction Act 1996 to be effective and neither notice set out the amount proposed to be withheld nor the grounds for doing so. It was insufficient for the withholding notice to simply say that the application for payment is in the wrong format.

The lesson

In order to be a valid notice, a withholding notice must specify and make clear the sum being withheld and the ground(s) for withholding.