UK: House Of Lords Rules For The First Time On The Housing Grants Act - Withholding Notices Not Required Following Determination Of Contract

Last Updated: 15 May 2007
Article by Greg Richards

In its first ever ruling on the Housing Grants, Construction & Regeneration Act 1996 ('the Act'), the House of Lords has decided in Melville Dundas Ltd v George Wimpey UK Ltd that where a contract has been determined on the grounds of an insolvency event, payment can be withheld despite the absence of an effective notice of withholding.

The Background

Melville Dundas ('the Contractor') was engaged by Wimpey ('the Employer') to carry out a housing development subject to the Standard Form of Building Contract issued by the Scottish Building Contracts Committee incorporating the JCT Standard Form of Building Contract (1998 Edition). On 16 May 2003, the Contractor should have been paid the sum of approximately £400,000 by way of interim payment certified by the Employer's Agent, this being the final date for payment. No notice of intention to withhold payment had been served. On 22 May 2003 administrative receivers were appointed to the Contractor. On 30 May 2003 the Employer determined the employment of the Contractor and refused to pay the sum.

At first instance, the issue became one of an apparent conflict between clause 27 of the Contract and section 111 of the Act.

Clause 27 provides:

"[on the occurrence of an insolvency event] the provisions of this Contract which require any further payment or any release or further release of Retention to the Contractor shall not apply; provided that [this clause] shall not be construed as to prevent the enforcement by the Contractor of any rights under this Contract in respect of amounts properly due to be paid by the Employer to the Contractor which the Employer has unreasonably not paid and which…have accrued 28 days or more before the date the Employer could first give notice to determine the employment of the Contractor."

It was accepted that the date when the Employer could first have given notice to determine the employment of the Contractor was 22 May 2003. It was also accepted (at first instance and on appeal although not before the House of Lords - see below), that absent sections 109, 110 and 111 of the Act, there could be no argument that the Employer was not entitled to withhold payment.

The difficulty came in considering the words of section 111 of the Act which states that:

"(1) A party to a construction contract may not withhold payment after the final date for payment of a sum due under the contract unless he has given an effective notice of intention to withhold payment…"

Lord Clarke took the view that there was no conflict between this section and the relevant part of clause 27 of the Contract. Section 111 was directed at cash flow during the course of a continuing contract and did not apply once the contract had been legitimately determined. He held that the section was not intended to subvert the parties' contractual arrangements, expressed in section 109(2) and 110(1) of the Act, the latter section providing that parties are free to agree how long the period is to be between the date on which a sum became due under the contract and the final date for payment. Clause 27 effectively postponed the final date for payment until the balancing up provided for under this clause had been concluded.

This decision was criticised at the time as effectively allowing parties to 'contract out' of the 1996 Act and on the grounds that it was in apparent conflict with other decisions then in existence such as Ferson Contractors Ltd v Levolux A.T Ltd and The Construction Centre Group v Highland Council where the courts enforced adjudication awards despite provisions in the contracts in those cases purporting to specify that no further sums could be paid after determination of the contract.

These factors, amongst others, were taken into account by the Scottish appeal court (the Inner House of the Court of Session) which on 15 December 2005, overturned Lord Clarke's decision. First, the appeal court held that the Act did apply even in a determination situation - it was the Contractor's employment which had come to an end, not the contract itself. Secondly, the Court considered the conflict between section 111(1) which required a notice of withholding if sums were to be withheld and clause 27 of the contract. The Court was influenced by the fact that the Contractor could have enforced payment at any time between 16 May 2003 and 30 May 2003 when the contract was determined. Even in the absence of section 111, it would require a very clear provision to retrospectively alter the final date for payment and deprive the Contractor of its right to be paid. Clause 27 did not postpone the final date for payment - rather it allowed the Employer to withhold sums which were otherwise due for payment, provided the provisions of sections 109 to 111 of the Act were complied with. In the absence of a notice of intention to withhold payment, the Employer was not permitted to do so.

The House of Lords Decision

This was how matters remained until the House of Lords issued its decision on 25 April 2007 following the appeal to it by the Employer, George Wimpey. The House of Lords, by a narrow majority of 3 to 2, overturned the decision of the Extra Division of the Court of Session, and reinstated Lord Clarke's first instance decision from October 2004.

There were two main issues which the House of Lords was asked to consider. First, the Lords reviewed the wording of the relevant part of clause 27 of the Contract. The Contractor took the position that the words within clause 27 restricting the requirement to make 'any further payment' where determination had occurred, only referred to future or further liabilities to make payment and did not affect the Employer's obligation to make payment of sums which had already accrued and were due for payment, prior to the date when notice of determination could first have been given, i.e. sums which were due for payment could not cease to be due. Their Lordships were unanimous in rejecting this contention on the basis that the clear intention of clause 27 was to restrict the Employer's obligation to make any further payment, whether accrued or not, in a determination situation, with the exception of sums which had accrued more than 28 days before the relevant date. The 28 day period had no meaning if the Contractor was correct that any sums which had accrued prior to determination had to be paid.

Thereafter the Lords had to consider the more difficult question of whether the intention of clause 27 was negated by the provisions of Part II of the Act, in particular sections 110 and 111 and the requirement to give notice of intention to withhold payments otherwise due for payment.

In considering this issue, all the judges who gave reasoned decisions looked in detail at sections 109-113 of the Act. Lord Hoffman in particular considered that section 109(2) of the Act had made it clear that parties 'are free to agree the amounts of the payments and the intervals at which, or circumstances in which, they become due'. This could include a situation where a sum which had fallen due ceased to be due because of circumstances subsequently arising. This led His Lordship to consider issues surrounding insolvency and the right of an employer to retain sums otherwise due against any claim for damages that he may have as a result of the determination. Lord Hoffman disagreed that it was clear that Parliament had intended that in such an insolvency situation employers were to bear the risk (as the Inner House had determined). Clause 27 in his view struck a reasonable balance between all the parties affected by the insolvency. Ultimately however, Lord Hoffman's decision was heavily influenced by the fact that in the current situation, it would not have been possible for the Employer to serve the notice of intention to withhold payment on time, the event giving rise to the right to withhold payment (the appointment of receivers and subsequent determination) not having occurred until after the final date for payment:

"In the case of clause the contractor will have been given notice of why the payment is being withheld because he will have received the notice of determination. But the retrospective operation of the clause means that he will not have received it within the time stipulated in the statute. It seems to me….that it would be absurd to impute to Parliament an intention to nullify clauses like, not by an express provision in the statute, but by the device of providing a notice requirement with which the employer can never comply. Section 111(1) must be construed in a way which is compatible with the operation of clause"

This he did by determining that clause 111(1) should not apply to a lawful ground of withholding payment of which it was not possible for notice to have been given in the statutory timeframe, even though it was acknowledged that this reasoning was 'not particularly elegant'. To hold otherwise would be to curtail the parties' freedom of contract permitted by other sections of the Act.

In relation to this second issue, Lord Hope of Craighead also decided in Wimpey's favour although this he did by looking in some detail at the intention of Parliament in enacting sections 109 to 111 of the Act. He considered the terms of a consultation paper, Fair Construction Contracts, issued in 1995, upon which the 1996 Act was ultimately based. Issues concerning the consequences of the insolvency of one or other of the parties to a construction contract had been debated at length but there was no indication that there was thought to be any need to constrain or restrict the employer's right of set off in the event of the determination of the contractor's employment under the contract. In Lord Hope's opinion, taking a purposive approach, section 111(1) of the Act was designed to address the issue of withholding of payment without notice of stage payments or other periodic payments, not the withholding of sums already due in the event of the determination of the contractor's employment pending the balancing of accounts. He therefore agreed with Lord Clarke that section 111(1) does not apply to the situation where the employer wishes to exercise his set off rights under clause 27.

In a persuasive dissenting judgment, Lord Neuberger of Abbotsbury was of the opinion that as a matter of simple statutory interpretation, no withholding under clause 27 was possible if an effective notice of intention to withhold payment had not been served. In his view, it had been made clear that parties should not be permitted to contract out of the fundamental provisions of the Act, which included the requirement to give advance notice of any intention to withhold payment. He was not persuaded that a sum which was due under the contract (as the payment here was on 16 May 2003), could subsequently be rendered 'not due'. He could see no reason why section 111 did not equally apply when a contract had been determined, as the requirement to give a notice of withholding applied to any sums 'due under the contract' and there were still sums due for payment, even after the Contractor's employment had been determined. In stark contrast to the reasoning of Lord Hope, Lord Neuberger was of the view that if Parliament had intended that section 111(1) should not apply where the contractor had become insolvent, then this should have been expressly stated - there was no such express statement and accordingly the natural inference was that the provisions of section 111(1) continued to apply even in these circumstances. For all of these reasons, Lord Neuberger proposed to dismiss the appeal.

Conclusions and Commentary

The fact that this case resulted in a split decision and only a narrow victory for the Employer, George Wimpey, shows the difficulty of the issues in dispute, which have to a large extent resulted from the inadequate drafting of the 1996 Act, not least in relation to the requirements to give notice of amounts to be paid and amounts withheld. Indeed several of the judges commented on the confusion created by sections 110(2) (payment notices) and 111(1) (withholding notices), and it is likely that this will add significant weight to the proposal that these sections be amended as part of the ongoing Construction Act review.

On a straightforward reading of the decision and the arguments put forward, the dissenting opinion of Lord Neuberger has much to commend it in terms of simplicity and straightforward intent of Parliament. By their own admission, the reasoning given by their Lordships who allowed the appeal, is awkward and requires reading into the Act meaning which is not apparent on the face of it. Nevertheless, this decision is final and will stand to regulate the rights and obligations of employers and contractors when an event has arisen which has given rise to a determination under Clause 27 of the JCT standard form contract. In these circumstances, the employer's contractual protection is preserved and it will be unnecessary for employers to serve a notice of intention to withhold payment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.