This is a brief but important case from the Court of Appeal concerning the meaning of S111 of the HGCRA. Jervis withheld payment of part of an interim certificate, but failed to issue a withholding notice as prescribed by the Act. The defendants said that it was open to them to prove that items of work that went to make up the unpaid balance were not done, were duplicated or represented snagging for work that had already been paid for.

Although LJ Jacob made reference to the numerous authorities on this question, he felt that they concentrated on the "unspoken but mistaken assumption...that the provision is dealing with the ultimate position between the parties". He turned to the actual contract in question, which was in the standard form provided by the Architecture and Surveying Institute. Clause 6.22 said that "the Employer shall pay the Contractor the amount certified within 14 days of the date of the certificate". Thus it was not the amount of work done that defined the sum which was due but the sum stated in the certificate. LJ Jacob continued:

"In the absence of a withholding notice, s111(1) operates to prevent the client withholding the sum due. The contractor is entitled to the money right away. The fundamental thing to understand is that s111(1) is a provision about cash flow. It is not a provision which seeks to make any certificate, interim or final, conclusive."

If, as in SL Timber v Carrillion Construction, the contract did not provide for a system of certificates and a contractor simply presented a bill for payment then that bill would not make any sums due. Therefore, no withholding notice would be necessary in respect of work not done as payment would not be due. LJ Jacob set out the following five advantages of this approach:

(i) It draws a line between claims for set off which do no more than reduce the sum due and claims which go further such as abatement;

(ii) It provides a fair solution which safeguards cash flow but does not prevent a party from raising disputed items in adjudication or litigation;

(iii) It requires the client who is going to withhold to be specific in his notice about how much he is withholding and why. This limits the amount of withholding to specific points, which must be raised early;

(iv) It does not preclude the client who has paid from subsequently showing he has overpaid. If he has overpaid on an interim certificate the matter can be put right in subsequent certificates. Otherwise he can raise the matter by way of adjudication or if necessary arbitration or legal proceedings; and

(v) It is directed at the mischief which s.111(1) was aimed at - namely, payment (or non-payment) abuses.

It was conceded that the principle disadvantage was the risk of insolvency. However, as the Court of Appeal said, this risk can be minimised if certificates are carefully checked and any withholding notice is given within time.

Interestingly, LJ Jacob flagged up the possibility that there may be a duty on architects (and presumably other contract administrators) to ensure that a lay client is aware of the possibility of serving a notice in sufficient detail and good time. Given the clarity of this Court of Appeal ruling, even if there is no legal responsibility for failing to advise this it is surely good practice even if the client has some experience of the construction industry.

Therefore, this judgment has gone a long way to clarifying the position where no withholding notice has been given. Thus, where an interim certificate has been issued, the absence of a notice in accordance with section 111 of the HGCRA, will mean that it is not permissible to withhold from the payment due (in respect of items of work already paid for or work not in fact carried out). The issue here related to interim certificates. A party will not be left without a remedy as the matters can be rectified by way of issue of the next interim certificate or even the final certificate. With a final certificate the situation may be different and a party will commence litigation or arbitration to cover any overpayment.