The claimant was employed by the defendant under a contract for goods and joinery services, a “construction contract” within the meaning of the HGCRA 1996. The defendant disputed the amounts due under various invoices. They failed to pay the full amount of the invoices within 30 days arguing that the invoices were overvalued and that the sums retained by them were overpayments which had already been made under the contract on previous invoices. No withholding notice had been issued.

First of all, HHJ Gilliand held that the requirements of s107 HGCRA 1996 were complied with as the relevant terms of the agreement were set out in a letter which both parties agreed on and which fulfilled the criteria “evidenced in writing”.

HHJ Gilliand then considered the effect of s111(1) in relation to the outstanding invoices. He held that under the terms of the contract between the parties the amounts claimed in the invoices did indeed become payable. He said the effect of the lack of a withholding notice was such that the defendants could not exercise a right they would otherwise have had under the general law to recover a previous overpayment by way of deduction or retention from the current invoices.

The judge said the practical effect of s111 is to stop the paying party, if he does not give the requisite notice, from exercising his right to withhold payment of sums that would otherwise be due but for the existence of some right to withhold payment.

Furthermore, HHJ Gilliand concluded that the failure to serve a valid notice did not have the result that the amount of the invoice was to be treated as the amount which is “due under the contract”. In his opinion, the use of the words “due under the contract” in s111 point to an intention that it is only from sums which would otherwise be due and payable that a retention can be made. He went on to say that the effect of s111 is not to deprive the paying party of any right to withhold payment from monies; nothing would prevent the payer from seeking to recover any payment he may have made by separate proceedings in exercise of the underlying right which might have justified a retention if valid notice had been given.