It is well known that if a responding party wishes to raise a cross-claim by way of a defence to a claim, a withholding notice is almost always required: see VHE Construction Plc v RBSTB Trust Co Ltd [2000] BLR 187. This can be contrasted to the situation where there is a simple defence where, for example, it may be argued that payment is not due because the work was not carried out in accordance with the contract and therefore the sum due is to be abated. Where there is a simple defence or abatement no withholding notice is required to be served.
A question that still however arises is the extent to which a defence to an adjudication can include a cross claim or counterclaim, something that was considered by Mr Justice Coulson in the recent case of Letchworth Roofing Company v Sterling Building Company. In this case Sterling challenged the enforcement of an adjudicators decision on grounds that included the adjudicator failing to deal with a particular dispute that was referred to him resulting in a breach of natural justice. More specifically Sterling argued that in reaching his decision the adjudicator failed to deduct the value of the cross claim from that ordered as due. The adjudicator did not deduct the value of the cross claim for the simple reason that the withholding notice was invalid as it did not state the amount to be withheld, it did not give grounds for the withholding and it was outside the prescribed timeframe. The adjudicator described this latter failure as “an absolute factor to invalidate the withholding notice”.
Within his judgement Mr Justice Coulson provided clear guidance on when a cross claim may be raised in an Adjudication:-
“In my judgment, the general position is clear. An adjudicator has to decide whether or not a withholding notice is required to permit a cross claim to be raised as a defence, and if so, whether or not there has been a valid notice. If he concludes that no notice was required, or that a notice was required and that there was a valid notice, then he must take the cross-claim into account in arriving at his decision. If he concludes that a notice was required, and that either there was no notice or that the notice that has been served was invalid for any reason, then he is not entitled to take the cross-claim into account when reaching his conclusion;”
The position is therefore very clear. If a party wishes to raise a cross claim within an adjudication he will only be able to do so if there has been the prior service of a valid withholding notice. If no such notice has been served then the adjudication will need to be defended on other grounds and a new claim commenced against the Claimant after the issuance of a valid withholding notice.
THE LAW HAS CHANGED SINCE THIS ARTICLE WAS WRITTEN. NO SET OFF WITHOUT A PAY LESS NOTICE/PAYMENT NOTICE.
