MJ Gleeson Group plc v Devonshire Green Holding Ltd

Employer's failure to serve an effective notice of intention to withhold payment pursuant to section 111 of the Construction Act meant that it could not rely on any other contractual right to oppose enforcement of the decision in the contractor's favour

Technology and Construction Court
His Honour Judge Gilliland QC
19 March 2004
The contract incorporated JCT 98 With Contractor's Design. In accordance with clause 30.3 the employer's agent gave a written notice to the contractor specifying the amount of payment to be made in respect of an interim payment applications. The employer refused to pay the amount specified which the adjudicator awarded to the contractor. The contractor applied to the court to have the decision enforced.
The employer submitted that: (1) Whilst it failed to serve any notice of withholding or deduction under clause 30.3 in respect of that application within the specified time limits, its specification as to the amount the contractor was entitled to on a subsequent application, ie an amount less than the amount applied for in the application in respect of which the adjudicator made his decision, constituted an effective such notice and a correct valuation of the works (2) It had a contractual right under clause 24.2.1 to recover liquidated damages as a debt in respect of a delay caused before the adjudication notwithstanding that it had not served a notice under clause 24.1 requiring the payment of liquidated damages and (3) It had served an effective notice of intention to withhold liquidated damages from the amount of the decision before the date on which adjudicator ordered the monies he awarded to be paid by the employer.
Judge Gilliland rejected all three submissions because: (1) Whatever was decided in relation to the subsequent payment application, that could not affect the contractor's clear right to be paid the amount it applied for or the adjudicator's decision as to the amount of that entitlement (2) The parties were obliged under clause 39A.7.2 to comply with the decision and had the right in clause 39A.7.3 to take legal proceedings to secure compliance and (3) Section 111 of the Construction Act did not have the effect of giving rise to a further and fresh right to serve a withholding notice in respect of what was essentially the employer's contractual obligation to pay in accordance with the payment application.
Advice Note
A paying party must be careful to serve an effective notice of intention to withhold payment in accordance with section 111 of the Construction Act if it wishes to make a valid set-off.