Windglass Windows Ltd v Capital Skyline Construction Ltd & Anor

Under section 111 of the Housing Grants, Construction and Regeneration Act 1996, a withholding notice must be effective in substance, not merely purport to be a notice. It must identify the amount withheld and the ground for withholding it. A paying party cannot use an ineffective notice as a gateway to introduce a different defence or cross-claim in a later adjudication. Where a cross-claim required a withholding notice and none was given, it cannot defeat an interim payment claim. Adjudicators’ decisions are temporarily binding and will be enforced unless the adjudicator decided a question outside the reference or acted obviously unfairly. The absence of a payment notice does not, however, automatically establish the full amount claimed: the true value of the work may still be assessed.

Windglass Windows Ltd supplied and installed glazing for Capital Skyline Construction Ltd. The contract lacked an adequate payment mechanism, so terms from Part II of the Scheme for Construction Contracts applied. Capital issued purported withholding notices referring only to the failure to use its preferred valuation format.

An adjudicator awarded Windglass £149,400 plus VAT, interest and costs, allowing a 10 per cent reduction for final snagging and review. Capital did not pay. Windglass sought summary judgment to enforce the adjudicator’s decision. Capital argued that the adjudicator had exceeded his jurisdiction by treating the withholding notices as ineffective and by excluding alleged claims for defects and delay. Windglass also pursued a contingent guarantee claim against Capital’s parent company, London and City Group Holdings Ltd.

1. Enforcement against Capital. Summary judgment was granted for £185,033.83, with continuing interest at £40.19 per day. The adjudicator had jurisdiction to decide whether effective withholding notices existed and whether Capital’s alleged cross-claims could be raised. His decision was therefore temporarily binding: see Carillion Construction Ltd v Devonport Royal Dockyard Ltd, [2005] EWCA Civ 1358, and Quartzelec Ltd v Honeywell Control Systems Ltd, [2008] EWHC 3315 (TCC).

2. Section 111 required an effective notice of intention to withhold payment. The notice had to specify the amount proposed to be withheld and the ground for withholding payment. The two letters did neither. A notice could not be effective merely because it purported to be a withholding notice.

3. The absence of an effective notice was fatal to Capital’s proposed cross-claim for defects and delay. Capital could not give one ineffective reason before the payment date and then advance an entirely different justification in the adjudication. The statutory scheme required good reasons to be given in advance: pay now and argue later. The same conclusion followed from Letchworth Roofing Company v Sterling Building Company, [2009] EWHC 1119 (TCC).

4. The absence of a section 110 payment notice did not automatically entitle Windglass to the whole amount claimed. The sum could still be adjusted to reflect the true value of the work and materials, as recognised in Rupert Morgan Building Services v Jervis, [2004] 1 WLR 1867. The adjudicator’s 10 per cent reduction was therefore permissible.

5. In any event, the alleged counterclaim was so vague, unparticularised and unlinked to the contract that it could not operate as a valid set-off. Any jurisdictional or natural justice defect would therefore have been technical and immaterial: Cantillon v Urvasco, [2008] BLR 250.

6. Claim against LCGH. The contingent claim concerning the alleged guarantee or indemnity was adjourned to September for oral evidence and full argument. It would proceed only if Capital failed to pay the judgment sum.