REUTERS | Mike Blake

Thinking of withholding payment? Don’t forget to serve a withholding notice

In HS Works v Enterprise, the court enforced an adjudicator’s decision that decided, among other things, that the absence of a valid withholding notice was fatal to the contractor’s attempt to withhold monies from the sub-contractor’s final account.

One might have thought that after more than 10 years of working with the Construction Act 1996, parties wouldn’t still make this type of mistake, but they do.

This case is a reminder that:

  • A withholding notice issued against an interim certificate needs to be repeated for the final certificate, even if the amount being withheld remains the same.
  • The safest course, if a party is in doubt, is to issue a further withholding notice. In the general scheme of things, it hardly adds a great administrative burden, and is certainly less time consuming and less expensive than an adjudication will prove to be.
  • A “draft final account” might qualify as an interim application against which a withholding notice needs to be issued. However, I would need to be persuaded that it was an application for payment and/or was part of a payment cycle.

Parties often ask the adjudicator to “value” the work and to consider arguments about abatement, set-off and the merits of a withholding notice.

I would deal with abatement issues in the absence of a withholding notice as that issue goes to the value of the work. However, I would only deal with the merits of a withholding notice/set-off item if I found that:

  • A valid withholding notice had been served; AND
  • The Referring Party challenged the grounds and/or amounts of the withholding (this was the alternative argument in the first adjudication in HS Works v Enterprise).

If I found that a withholding notice had not been served then I would not deal with the merits of withholding unless I was persuaded that, as a matter of fact, the withheld amount was actually an abatement and went to the value of the work.

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