REUTERS | Jumana ElHeloueh

No withholding notice – no chance?

We have continuously been told that if you fail to issue a valid withholding notice, you have to pay the sum which is due and you have lost your right to set-off and generally argue anything to the contrary.

That is certainly true in cases concerning interim certificates and adjudication (where the adjudicator’s decision is only temporarily binding), but is it always the case?  Is the answer so black and white?  Certainly, having read Mr Justice Coulson’s recent judgment in Fitzroy Robinson Ltd v Mentmore Towers Ltd, I think there are some shades of grey.

In Fitzroy, Mr Justice Coulson decided that the courts will not allow justice not to be done if the court (the final dispute resolver) is concerned that the sum due is not, in fact, the sum to which the claimant is properly entitled.  Mr Justice Coulson thought it would be wrong “in all the circumstances” for him to conclude that the “simple absence” of a withholding notice entitled the claimant to be paid the sum which was technically “due” under the contract, if in fact the defendant had a valid defence as to why this sum should not be paid in full.

Given that Mr Justice Coulson thought the defendant had a substantive defence to the full amount claimed, Mr Justice Coulson thought that it would be artificial for him to give judgment for the sum which was “due” under the contract.  However, as the defendant was in breach of the contract in failing to pay the sum which was due at the relevant time, the claimant was entitled to be paid interest on those sums which were, contractually speaking, due. The court would determine what amount was “due” at a separate quantum hearing. (The judgment does not say whether interest will be payable at a contract rate, or at 8% over base rate, under the Late Payment of Commercial Debts (Interest) Act 1998.)

So, there you go.  Section 111 of the Construction Act 1996 does not do exactly everything it says on the tin.  No wonder that lawyers can never give you a straight “yes” or “no” answer!

Share this post on: