UK: No Withholding Notice? No Problem...

Last Updated: 11 December 2009
Article by Peter Lampitt

A new TCC judgment supports what seems to be a gap in the Construction Act (that the recently enacted changes to the Act, if and when they come into force, would not affect). The case confirms that failing to serve a valid withholding notice may not prevent a payer from still withholding.

The Background

  • In 2007 Sentosa (UK) Limited ("Sentosa"), engaged JPA Design and Build Ltd ("JPA") to construct a medical centre in Brentford pursuant to a JCT 2005 D&B form (2007 ed). Under clause 4.6, JPA were entitled to an advance payment of £300,000, to be repaid to Sentosa as part of the calculation of the final account.
  • Following agreement of the contract, JPA valued their start-up costs at £252,000, somewhat less than the £300,000 anticipated. Sentosa paid the £252,000 to JPA. However, contrary to the terms of the contract, rather than factoring that sum into the final account, the monies were deducted from sums due to JPA under the second interim valuation. At the time JPA raised no complaint.
  • The relationship soured and in November 2008, JPA submitted a claim for £300,000 in reliance on clause 4.6. Sentosa denied that JPA had a right to the funds and the matter proceeded to adjudication, where the Adjudicator decided that JPA did have such an entitlement.
  • Six weeks later Sentosa obtained an Adjudicator's decision effectively stating that they were entitled to liquidated damages ("LDs") of £180,000. However, as a valid withholding notice had not been served, the Adjudicator stated that Sentosa were not entitled to withhold from monies due to JPA, and would have to bring a separate court claim for the £180,000.

The TCC Hearing

Sentosa accepted that in accordance with the first Adjudicator's decision, JPA were entitled to £300,000. However, it sought to set off against that sum the £180,000 LDs that the second Adjudicator in effect said were due.

The court relied on an earlier case (Balfour Beatty v Serco), in which it was held that where it follows logically from an adjudicator's decision that an employer is entitled to LDs, they can be set off against monies payable to the contractor under that Adjudicator's decision. The court rejected the argument that the failure to serve a valid withholding notice should prevent Sentosa from being allowed to set off the LDs, stating that there was nothing in the second Adjudicator's decision or the contract that imposed such a restriction.

The recent judgment in HS Works v Enterprise was apparently not cited. In it Akenhead J gave guidance on where the court is faced with two valid decisions which decide different things but which might or do impact on each other. He held that where both decisions are capable of being enforced and separate proceedings have been brought by each party to enforce each decision, the court should enforce both. However, it is open to the court whether it sets one decision off against the other and "it may be wholly inappropriate to permit a set off of a second financial decision... where the first decision was predicated upon a basis that there could be no set off."

In the different circumstances of this case, the court held that while the second Adjudicator said that the LDs could not be set off, he was referring to the right to set off under the contract. Once he gave his decision a new set off right arose, namely to set off the amount awarded in his decision against the first decision (even though a withholding notice had not been given).


While the lack of a withholding notice may prevent withholding under a contract, when the claim that would have grounded the withholding is supported by an adjudicator's decision that decision will be enforced. In enforcing that decision the court may set it off against a sum awarded by another adjudicator's decision in respect of which a withholding notice was not given. The lack of a withholding notice therefore does not prevent the withholding of one sum awarded by an adjudicator against another such sum.

It is hard for a payee who is entitled to be paid a sum because a withholding notice was not given to avoid having to repay all or part of that sum if the payer obtains an adjudicator's decision on a claim that it failed to give a withholding notice for. In some cases if the payee acts quickly it may enforce any favourable decision before the payer obtains a decision in its adjudication, but the payee still faces having to pay any sum awarded against it in the second adjudication. Payees may consider pursuing claims based on a lack of a withholding notice in the first instance by court proceedings and skipping adjudication. This should take no longer than enforcing an adjudicator's decision, should entitle the payee to its costs (which are not recoverable in adjudication unless the parties specifically permit costs recovery) and results in a court judgment. It is harder for the payer (whose claim is likely to be less susceptible to a speedy court judgment) to obtain anything other than an adjudicator's decision, which it may then have to take to court to enforce. While the payee's cash flow benefits, ultimately it must still respect any decision given against it.

Reference: JPA Design and Build Ltd v Sentosa (UK) Ltd [2009] EWHC 2312 (TCC)

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 09/12/2009.

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