Subcontractors face a greater risk of withheld payments in the wake of a House of Lords case that could overrule a key section of the Construction Act.

Ruling in the case of Melville Dundas vs George Wimpey, the Lords held that a withholding notice did not have to have been issued for payment to be refused, contrary to the wording of the Construction Act.

The case centred on a housing development in Glasgow. Wimpey had failed to issue a withholding notice to Melville Dundas five days before payment was due. Under the terms of the act this ought to have entitled Melville Dundas to the full amount. However, it went into administration, and Wimpey claimed this meant it could terminate the contract and suspend payment until a later date, a claim that the Lords upheld. The ruling is likely to reduce subcontractors’ protection against withholding, as it creates the possibility that a contractor could withhold payments if there is a risk a subcontractor will go into administration.