Section 111 of the Housing Grants Construction and Regeneration Act 1996 states that party to a construction contract may not withhold payment of a sum due under the contract unless he has given an effective notice of intention to withhold payment. This case confirms that s111 effectively excludes the right of set of in respect of sums which are claimed if a valid notice of intention to withhold payment has not been served. However it does not permanently bar valid claims for those sums.
The Honourable Mr Justice Jackson
Technology and Construction Court (The Combined Court Centre, Leeds)
This case essentially concerns a dispute about a final account. However it also reaffirms the Court's view of s111 HGCRA 1996.
Gill and Wilkinson Limited was engaged by Totty Construction Group Plc as mechanical and electrical sub-contractor in relation to refurbishment works at Leeds Metropolitan University. Gill engaged Machenair Limited as its labour only sub-sub-contractor to carry out mechanical works on the project. The contract between Gill and Machenair comprised three quotations from Machenair and three purchase orders from Gill.
Machenair commenced the works in February 2003. A number of variation instructions were issued and delays developed on the project.
Once the sub-contract work was completed Gill and Totty dealt with their final account. Totty alleged Gill had caused a delay of three weeks and the parties agreed damages for delay. Gill then added a 15% mark up to this sum and sought to recover it from Machenair, and another sub-sub-contractor, D and G Technical Service Limited.
In August 2003, Machenair submitted its final account. In the course of negotiation the final account was revised but no compromise could be reached between Gill and Machenair. Machenair issued a claim form in February 2004 for the outstanding balance due. Gill defended the action on the basis that the sums claimed by Machenair were excessive. Gill also set up a counterclaim in respect of delay and other matters.
Machenair disputed Gill's entitlement to bring a counterclaim in this action. Gill had failed to serve a withholding notice in accordance with s111 HGCRA 1996. Machenair submitted that this failure meant that the counterclaim was barred. Gill accepted that a withholding notice had not been served within the prescribed period, however it submitted this did not shut out the counterclaim.
Mr Justice Jackson accepted Gill's submissions, stating that even though the effect of s111 is to exclude the right of set off, it does not bar for all time any otherwise valid claims which might exist against a contractor or sub-contractor.
In spite of this, Gill failed on its principal head of counterclaim for delay as Machenair was found to have completed its work within a reasonable time. As for the rest of the final account between Gill and Machenair, the Court found for Machenair on the outstanding sums due.
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